Finance

Tenaris S.A. (TS) vs. Bitauto Holdings Limited (BITA): Comparing the Metal Fabrication Industry’s Most Active Stocks

Tenaris S.A. (NYSE:TS) shares are up more than 26.65% this year and recently increased 2.18% or $0.86 to settle at $40.35. Bitauto Holdings Limited (NYSE:BITA), on the other hand, is down -24.91% year to date as of 05/17/2018. It currently trades at $23.88 and has returned -0.08% during the past week.

Tenaris S.A. (NYSE:TS) and Bitauto Holdings Limited (NYSE:BITA) are the two most active stocks in the Metal Fabrication 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect TS to grow earnings at a 44.55% annual rate over the next 5 years. Comparatively, BITA is expected to grow at a 4.70% annual rate. All else equal, TS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. TS’s ROI is 2.70% while BITA has a ROI of -3.40%. The interpretation is that TS’s business generates a higher return on investment than BITA’s.

Cash Flow



Cash is king when it comes to investing. TS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, BITA’s free cash flow per share was -. On a percent-of-sales basis, TS’s free cash flow was -0.89% while BITA converted 0% of its revenues into cash flow. This means that, for a given level of sales, BITA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. TS has a current ratio of 2.60 compared to 1.20 for BITA. This means that TS can more easily cover its most immediate liabilities over the next twelve months. TS’s debt-to-equity ratio is 0.09 versus a D/E of 2.28 for BITA. BITA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TS trades at a forward P/E of 21.54, a P/B of 2.03, and a P/S of 3.99, compared to a forward P/E of 10.29, a P/B of 0.95, and a P/S of 1.24 for BITA. TS is the expensive 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. TS is currently priced at a 6.69% to its one-year price target of 37.82. Comparatively, BITA is -31.12% relative to its price target of 34.67. This suggests that BITA 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. TS has a beta of 0.69 and BITA’s beta is 3.05. TS’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. TS has a short ratio of 1.69 compared to a short interest of 6.45 for BITA. This implies that the market is currently less bearish on the outlook for TS.

Summary

Bitauto Holdings Limited (NYSE:BITA) beats Tenaris S.A. (NYSE:TS) on a total of 7 of the 14 factors compared between the two stocks. BITA is growing fastly and has a higher cash conversion rate. In terms of valuation, BITA is the cheaper of the two stocks on an earnings, book value and sales basis, BITA is more undervalued relative to its price target. Finally, ECA has better sentiment signals based on short interest.

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