United States Steel Corporation (NYSE:X) shares are up more than 6.68% this year and recently increased 0.08% or $0.03 to settle at $37.54. Gilead Sciences, Inc. (NASDAQ:GILD), on the other hand, is down -5.64% year to date as of 05/17/2018. It currently trades at $67.60 and has returned 3.41% during the past week.
United States Steel Corporation (NYSE:X) and Gilead Sciences, Inc. (NASDAQ:GILD) are the two most active stocks in the Steel & Iron industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 X to grow earnings at a 12.56% annual rate over the next 5 years. Comparatively, GILD is expected to grow at a -6.85% annual rate. All else equal, X’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 58.49% for Gilead Sciences, Inc. (GILD). X’s ROI is 9.30% while GILD has a ROI of 19.90%. The interpretation is that GILD’s business generates a higher return on investment than X’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. X’s free cash flow (“FCF”) per share for the trailing twelve months was -1.77. Comparatively, GILD’s free cash flow per share was +0.99. On a percent-of-sales basis, X’s free cash flow was -2.55% while GILD converted 4.93% of its revenues into cash flow. This means that, for a given level of sales, GILD 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. X has a current ratio of 1.60 compared to 2.80 for GILD. This means that GILD can more easily cover its most immediate liabilities over the next twelve months. X’s debt-to-equity ratio is 0.83 versus a D/E of 1.41 for GILD. GILD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
X trades at a forward P/E of 7.14, a P/B of 1.92, and a P/S of 0.52, compared to a forward P/E of 10.46, a P/B of 4.29, and a P/S of 3.58 for GILD. X 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. X is currently priced at a -17.44% to its one-year price target of 45.47. Comparatively, GILD is -21.91% relative to its price target of 86.57. This suggests that GILD 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. X has a beta of 3.02 and GILD’s beta is 1.14. GILD’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. X has a short ratio of 0.98 compared to a short interest of 2.20 for GILD. This implies that the market is currently less bearish on the outlook for X.Summary
Gilead Sciences, Inc. (NASDAQ:GILD) beats United States Steel Corporation (NYSE:X) on a total of 7 of the 14 factors compared between the two stocks. GILD is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, X is the cheaper of the two stocks on an earnings, book value and sales basis, GILD is more undervalued relative to its price target. Finally, PFE has better sentiment signals based on short interest.