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Comparing Vodafone Group Plc (VOD) and The Wendy’s Company (WEN)

Vodafone Group Plc (NASDAQ:VOD) shares are down more than -16.58% this year and recently increased 0.04% or $0.01 to settle at $26.61. The Wendy’s Company (NASDAQ:WEN), on the other hand, is down -0.43% year to date as of 05/17/2018. It currently trades at $16.35 and has returned -1.62% during the past week.

Vodafone Group Plc (NASDAQ:VOD) and The Wendy’s Company (NASDAQ:WEN) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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 VOD to grow earnings at a 11.20% annual rate over the next 5 years. Comparatively, WEN is expected to grow at a 23.37% annual rate. All else equal, WEN’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. EBITDA margin of 25.68% for The Wendy’s Company (WEN). VOD’s ROI is -0.90% while WEN has a ROI of 5.00%. The interpretation is that WEN’s business generates a higher return on investment than VOD’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, VOD’s free cash flow was 0% while WEN converted 1.57% of its revenues into cash flow. This means that, for a given level of sales, WEN is able to generate more free cash flow for investors.

Valuation

VOD trades at a forward P/E of 18.29, a P/B of 0.89, and a P/S of 1.25, compared to a forward P/E of 24.08, a P/B of 8.47, and a P/S of 2.99 for WEN. VOD 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. VOD is currently priced at a -24.75% to its one-year price target of 35.36. Comparatively, WEN is -13.72% relative to its price target of 18.95. This suggests that VOD 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. VOD has a beta of 0.84 and WEN’s beta is 0.73. WEN’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. VOD has a short ratio of 3.34 compared to a short interest of 5.43 for WEN. This implies that the market is currently less bearish on the outlook for VOD.

Summary




The Wendy’s Company (NASDAQ:WEN) beats Vodafone Group Plc (NASDAQ:VOD) on a total of 7 of the 14 factors compared between the two stocks. WEN has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, VOD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, PFE has better sentiment signals based on short interest.

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