Finance

A Side-by-side Analysis of Avon Products, Inc. (AVP) and Mallinckrodt Public Limited Company (MNK)

Avon Products, Inc. (NYSE:AVP) shares are down more than -9.77% this year and recently increased 3.19% or $0.06 to settle at $1.94. Mallinckrodt Public Limited Company (NYSE:MNK), on the other hand, is down -28.77% year to date as of 05/17/2018. It currently trades at $16.07 and has returned 10.83% during the past week.

Avon Products, Inc. (NYSE:AVP) and Mallinckrodt Public Limited Company (NYSE:MNK) are the two most active stocks in the Personal Products industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect AVP to grow earnings at a 54.20% annual rate over the next 5 years. Comparatively, MNK is expected to grow at a 3.16% annual rate. All else equal, AVP’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 31.72% for Mallinckrodt Public Limited Company (MNK). AVP’s ROI is 12.60% while MNK has a ROI of 12.60%. The interpretation is that AVP’s business generates a higher return on investment than MNK’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. AVP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.28. Comparatively, MNK’s free cash flow per share was -0.19. On a percent-of-sales basis, AVP’s free cash flow was -2.16% while MNK converted -0.49% of its revenues into cash flow. This means that, for a given level of sales, MNK is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AVP has a current ratio of 1.20 compared to 2.10 for MNK. This means that MNK can more easily cover its most immediate liabilities over the next twelve months.

Valuation

AVP trades at a forward P/E of 8.08, and a P/S of 0.15, compared to a forward P/E of 2.34, a P/B of 0.21, and a P/S of 0.46 for MNK. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. AVP is currently priced at a -29.96% to its one-year price target of 2.77. Comparatively, MNK is -33.04% relative to its price target of 24.00. This suggests that MNK is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. AVP has a beta of 1.34 and MNK’s beta is 1.17. MNK’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. AVP has a short ratio of 4.33 compared to a short interest of 7.64 for MNK. This implies that the market is currently less bearish on the outlook for AVP.

Summary

Mallinckrodt Public Limited Company (NYSE:MNK) beats Avon Products, Inc. (NYSE:AVP) on a total of 8 of the 14 factors compared between the two stocks. MNK is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. MNK is more undervalued relative to its price target. Finally, EOG has better sentiment signals based on short interest.

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