Global

Comparing QUALCOMM Incorporated (QCOM) and The Western Union Company (WU)

QUALCOMM Incorporated (NASDAQ:QCOM) shares are down more than -11.04% this year and recently increased 0.44% or $0.25 to settle at $56.95. The Western Union Company (NYSE:WU), on the other hand, is up 5.79% year to date as of 05/17/2018. It currently trades at $20.11 and has returned 0.25% during the past week.

QUALCOMM Incorporated (NASDAQ:QCOM) and The Western Union Company (NYSE:WU) are the two most active stocks in the Communication Equipment industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect QCOM to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, WU is expected to grow at a 4.19% annual rate. All else equal, QCOM’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 13.87% for The Western Union Company (WU). QCOM’s ROI is 3.60% while WU has a ROI of 15.60%. The interpretation is that WU’s business generates a higher return on investment than QCOM’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. QCOM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.34. Comparatively, WU’s free cash flow per share was +0.05. On a percent-of-sales basis, QCOM’s free cash flow was -2.26% while WU converted 0.42% of its revenues into cash flow. This means that, for a given level of sales, WU is able to generate more free cash flow for investors.

Valuation

QCOM trades at a forward P/E of 16.30, a P/B of 3.54, and a P/S of 3.73, compared to a forward P/E of 10.29, and a P/S of 1.65 for WU. QCOM is the expensive 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

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. QCOM is currently priced at a -8.28% to its one-year price target of 62.09. Comparatively, WU is -2.76% relative to its price target of 20.68. This suggests that QCOM is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. QCOM has a beta of 1.49 and WU’s beta is 1.01. WU’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. QCOM has a short ratio of 1.36 compared to a short interest of 8.60 for WU. This implies that the market is currently less bearish on the outlook for QCOM.

Summary




The Western Union Company (NYSE:WU) beats QUALCOMM Incorporated (NASDAQ:QCOM) on a total of 8 of the 14 factors compared between the two stocks. WU is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, WU is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, ABT has better sentiment signals based on short interest.

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