Earnings

Financially Devastating or Fantastic? – The Home Depot, Inc. (HD), Halcon Resources Corporation (HK)

The shares of The Home Depot, Inc. have increased by more than 0.82% this year alone. The shares recently went up by 0.40% or $0.77 and now trades at $191.08. The shares of Halcon Resources Corporation (NYSE:HK), has slumped by -35.40% year to date as of 05/14/2018. The shares currently trade at $4.89 and have been able to report a change of 2.09% over the past one week.

The stock of The Home Depot, Inc. and Halcon Resources Corporation were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. HD has an EBITDA margin of 16.67%, this implies that the underlying business of HK is more profitable. The ROI of HD is 35.20% while that of HK is 59.80%. These figures suggest that HK ventures generate a higher ROI than that of HD.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, HD’s free cash flow per share is a positive 0.71, while that of HK is negative -0.08.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for HD is 1.20 and that of HK is 3.20. This implies that it is easier for HD to cover its immediate obligations over the next 12 months than HK. The debt ratio of HD is 18.59 compared to 0.00 for HK. HD can be able to settle its long-term debts and thus is a lower financial risk than HK.

Valuation

HD currently trades at a forward P/E of 18.73, a P/B of 152.86, and a P/S of 2.20 while HK trades at a forward P/E of 8.18, a P/B of 0.66, and a P/S of 2.80. This means that looking at the earnings, book values and sales basis, HD is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of HD is currently at a -9.87% to its one-year price target of 212.01. Looking at its rival pricing, HK is at a -51.54% relative to its price target of 10.09.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), HD is given a 1.90 while 2.10 placed for HK. This means that analysts are more bullish on the outlook for HK stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for HD is 1.94 while that of HK is just 6.20. This means that analysts are more bullish on the forecast for HD stock.

Conclusion

The stock of The Home Depot, Inc. defeats that of Halcon Resources Corporation when the two are compared, with HD taking 7 out of the total factors that were been considered. HD happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, HD is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for HD is better on when it is viewed on short interest.

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