Coty Inc. (NYSE:COTY) shares are down more than -28.71% this year and recently decreased -2.27% or -$0.33 to settle at $14.18. Duke Energy Corporation (NYSE:DUK), on the other hand, is down -11.84% year to date as of 05/17/2018. It currently trades at $74.15 and has returned -5.13% during the past week.
Coty Inc. (NYSE:COTY) and Duke Energy Corporation (NYSE:DUK) are the two most active stocks in the Personal Products 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
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 COTY to grow earnings at a 13.65% annual rate over the next 5 years. Comparatively, DUK is expected to grow at a 4.25% annual rate. All else equal, COTY’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 21.2% for Duke Energy Corporation (DUK). COTY’s ROI is -1.10% while DUK has a ROI of 4.20%. The interpretation is that DUK’s business generates a higher return on investment than COTY’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. COTY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.40. Comparatively, DUK’s free cash flow per share was -1.10. On a percent-of-sales basis, COTY’s free cash flow was -3.92% while DUK converted -3.27% of its revenues into cash flow. This means that, for a given level of sales, DUK is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. COTY has a current ratio of 1.00 compared to 0.60 for DUK. This means that COTY can more easily cover its most immediate liabilities over the next twelve months. COTY’s debt-to-equity ratio is 0.83 versus a D/E of 1.34 for DUK. DUK is therefore the more solvent of the two companies, and has lower financial risk.Valuation
COTY trades at a forward P/E of 16.15, a P/B of 1.12, and a P/S of 1.19, compared to a forward P/E of 14.99, a P/B of 1.24, and a P/S of 2.21 for DUK. 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. COTY is currently priced at a -29.66% to its one-year price target of 20.16. Comparatively, DUK is -9.79% relative to its price target of 82.20. This suggests that COTY 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. COTY has a beta of 0.30 and DUK’s beta is 0.12. DUK’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. COTY has a short ratio of 11.29 compared to a short interest of 5.84 for DUK. This implies that the market is currently less bearish on the outlook for DUK.Summary
Coty Inc. (NYSE:COTY) beats Duke Energy Corporation (NYSE:DUK) on a total of 8 of the 14 factors compared between the two stocks. COTY is growing fastly, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, COTY is the cheaper of the two stocks on book value and sales basis, COTY is more undervalued relative to its price target.