Tapestry, Inc. (NYSE:TPR) shares are up more than 0.43% this year and recently increased 0.18% or $0.08 to settle at $44.42. Church & Dwight Co., Inc. (NYSE:CHD), on the other hand, is down -6.94% year to date as of 05/17/2018. It currently trades at $46.69 and has returned -2.26% during the past week.
Tapestry, Inc. (NYSE:TPR) and Church & Dwight Co., Inc. (NYSE:CHD) are the two most active stocks in the Textile – Apparel Footwear & Accessories industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect TPR to grow earnings at a 11.51% annual rate over the next 5 years. Comparatively, CHD is expected to grow at a 10.56% annual rate. All else equal, TPR’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., compared to an EBITDA margin of 23.03% for Church & Dwight Co., Inc. (CHD). TPR’s ROI is 13.50% while CHD has a ROI of 11.10%. The interpretation is that TPR’s business generates a higher return on investment than CHD’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. TPR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, CHD’s free cash flow per share was +0.37. On a percent-of-sales basis, TPR’s free cash flow was 0% while CHD converted 2.4% of its revenues into cash flow. This means that, for a given level of sales, CHD is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. TPR has a current ratio of 2.70 compared to 0.70 for CHD. This means that TPR can more easily cover its most immediate liabilities over the next twelve months. TPR’s debt-to-equity ratio is 0.51 versus a D/E of 1.10 for CHD. CHD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TPR trades at a forward P/E of 15.52, a P/B of 4.05, and a P/S of 2.30, compared to a forward P/E of 19.13, a P/B of 5.34, and a P/S of 2.94 for CHD. TPR 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. TPR is currently priced at a -20.96% to its one-year price target of 56.20. Comparatively, CHD is -7.23% relative to its price target of 50.33. This suggests that TPR is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. TPR has a beta of 0.35 and CHD’s beta is 0.42. TPR’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. TPR has a short ratio of 2.60 compared to a short interest of 6.18 for CHD. This implies that the market is currently less bearish on the outlook for TPR.Summary
Tapestry, Inc. (NYSE:TPR) beats Church & Dwight Co., Inc. (NYSE:CHD) on a total of 11 of the 14 factors compared between the two stocks. TPR is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, TPR is the cheaper of the two stocks on an earnings, book value and sales basis, TPR is more undervalued relative to its price target. Finally, TPR has better sentiment signals based on short interest.