Viacom, Inc. (NASDAQ:VIAB) shares are down more than -8.60% this year and recently decreased -0.39% or -$0.11 to settle at $28.16. Deere & Company (NYSE:DE), on the other hand, is down -6.20% year to date as of 05/17/2018. It currently trades at $146.81 and has returned 0.14% during the past week.
Viacom, Inc. (NASDAQ:VIAB) and Deere & Company (NYSE:DE) are the two most active stocks in the Entertainment – Diversified 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect VIAB to grow earnings at a 5.53% annual rate over the next 5 years. Comparatively, DE is expected to grow at a 27.62% annual rate. All else equal, DE’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 19.61% for Deere & Company (DE). VIAB’s ROI is 14.50% while DE has a ROI of 6.50%. The interpretation is that VIAB’s business generates a higher return on investment than DE’s.Cash Flow
Cash is king when it comes to investing. VIAB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, DE’s free cash flow per share was -6.29. On a percent-of-sales basis, VIAB’s free cash flow was 1.28% while DE converted -6.85% of its revenues into cash flow. This means that, for a given level of sales, VIAB is able to generate more free cash flow for investors.Liquidity and Financial Risk
VIAB’s debt-to-equity ratio is 1.49 versus a D/E of 4.39 for DE. DE is therefore the more solvent of the two companies, and has lower financial risk.
VIAB trades at a forward P/E of 6.41, a P/B of 1.67, and a P/S of 0.89, compared to a forward P/E of 12.81, a P/B of 5.12, and a P/S of 1.51 for DE. VIAB 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 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. VIAB is currently priced at a -19.86% to its one-year price target of 35.14. Comparatively, DE is -20.1% relative to its price target of 183.75. This suggests that DE 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. VIAB has a beta of 1.47 and DE’s beta is 0.86. DE’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. VIAB has a short ratio of 4.46 compared to a short interest of 2.84 for DE. This implies that the market is currently less bearish on the outlook for DE.Summary
Viacom, Inc. (NASDAQ:VIAB) beats Deere & Company (NYSE:DE) on a total of 8 of the 14 factors compared between the two stocks. VIAB 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, VIAB is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, YNDX has better sentiment signals based on short interest.