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A Side-by-side Analysis of Intel Corporation (INTC) and Facebook, Inc. (FB)

Intel Corporation (NASDAQ:INTC) shares are up more than 18.74% this year and recently increased 0.31% or $0.17 to settle at $54.81. Facebook, Inc. (NASDAQ:FB), on the other hand, is up 4.14% year to date as of 05/17/2018. It currently trades at $183.76 and has returned -0.95% during the past week.

Intel Corporation (NASDAQ:INTC) and Facebook, Inc. (NASDAQ:FB) are the two most active stocks in the Semiconductor – Broad Line industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect INTC to grow earnings at a 9.76% annual rate over the next 5 years. Comparatively, FB is expected to grow at a 26.22% annual rate. All else equal, FB’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 58.53% for Facebook, Inc. (FB). INTC’s ROI is 12.40% while FB has a ROI of 24.00%. The interpretation is that FB’s business generates a higher return on investment than INTC’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. INTC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.41. Comparatively, FB’s free cash flow per share was +1.71. On a percent-of-sales basis, INTC’s free cash flow was 3.06% while FB converted 12.22% of its revenues into cash flow. This means that, for a given level of sales, FB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. INTC has a current ratio of 1.60 compared to 9.90 for FB. This means that FB can more easily cover its most immediate liabilities over the next twelve months. INTC’s debt-to-equity ratio is 0.41 versus a D/E of 0.00 for FB. INTC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

INTC trades at a forward P/E of 13.54, a P/B of 3.65, and a P/S of 4.00, compared to a forward P/E of 20.11, a P/B of 6.88, and a P/S of 11.65 for FB. INTC is the cheaper of the two stocks on an earnings, book value and sales basis. 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. INTC is currently priced at a -9.03% to its one-year price target of 60.25. Comparatively, FB is -14.95% relative to its price target of 216.06. This suggests that FB is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. INTC has a beta of 0.95 and FB’s beta is 0.85. FB’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. INTC has a short ratio of 2.53 compared to a short interest of 0.62 for FB. This implies that the market is currently less bearish on the outlook for FB.

Summary

Facebook, Inc. (NASDAQ:FB) beats Intel Corporation (NASDAQ:INTC) on a total of 11 of the 14 factors compared between the two stocks. FB , is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, INTC is the cheaper of the two stocks on an earnings, book value and sales basis, FB is more undervalued relative to its price target. Finally, FB has better sentiment signals based on short interest.

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