Global

Critical Comparison: Verizon Communications Inc. (VZ) vs. B2Gold Corp. (BTG)

Verizon Communications Inc. (NYSE:VZ) shares are down more than -9.60% this year and recently decreased -0.02% or -$0.01 to settle at $47.85. B2Gold Corp. (NYSE:BTG), on the other hand, is down -12.58% year to date as of 05/17/2018. It currently trades at $2.71 and has returned -6.23% during the past week.

Verizon Communications Inc. (NYSE:VZ) and B2Gold Corp. (NYSE:BTG) are the two most active stocks in the Telecom Services – Domestic 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

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 VZ to grow earnings at a 5.50% annual rate over the next 5 years. Comparatively, BTG is expected to grow at a 15.80% annual rate. All else equal, BTG’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. Verizon Communications Inc. (VZ) has an EBITDA margin of 33.98%. This suggests that VZ underlying business is more profitable

Cash Flow



The value of a stock is simply the present value of its future free cash flows. VZ’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, BTG’s free cash flow per share was +0.10. On a percent-of-sales basis, VZ’s free cash flow was -0.26% while BTG converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, BTG is able to generate more free cash flow for investors.

Valuation

VZ trades at a forward P/E of 10.23, a P/B of 3.87, and a P/S of 1.47, compared to a forward P/E of 12.90, a P/B of 1.71, and a P/S of 4.15 for BTG. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. VZ is currently priced at a -14.37% to its one-year price target of 55.88. Comparatively, BTG is -22.57% relative to its price target of 3.50. This suggests that BTG is the better investment over the next year.

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. VZ has a short ratio of 2.12 compared to a short interest of 4.55 for BTG. This implies that the market is currently less bearish on the outlook for VZ.

Summary

B2Gold Corp. (NYSE:BTG) beats Verizon Communications Inc. (NYSE:VZ) on a total of 8 of the 14 factors compared between the two stocks. BTG is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. BTG is more undervalued relative to its price target. Finally, MDLZ has better sentiment signals based on short interest.

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