Earnings

Which of 2 stocks would appeal to long-term investors? Constellium N.V. (CSTM), AGCO Corporation (AGCO)

The shares of Constellium N.V. have increased by more than 10.76% this year alone. The shares recently went up by 2.07% or $0.25 and now trades at $12.35. The shares of AGCO Corporation (NYSE:AGCO), has slumped by -7.00% year to date as of 05/17/2018. The shares currently trade at $66.43 and have been able to report a change of 2.98% over the past one week.

The stock of Constellium N.V. and AGCO Corporation were two of the most active stocks on Thuday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of CSTM is 12.50% while that of AGCO is 6.60%. These figures suggest that CSTM ventures generate a higher ROI than that of AGCO.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CSTM’s free cash flow per share is a negative -1.16, while that of AGCO is also a negative -4.99.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CSTM is 1.20 and that of AGCO is 1.50. This implies that it is easier for CSTM to cover its immediate obligations over the next 12 months than AGCO.

Valuation

CSTM currently trades at a forward P/E of 11.60, and a P/S of 0.26 while AGCO trades at a forward P/E of 14.06, a P/B of 1.73, and a P/S of 0.60. This means that looking at the earnings, book values and sales basis, CSTM is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of CSTM is currently at a -23.95% to its one-year price target of 16.24. Looking at its rival pricing, AGCO is at a -6% relative to its price target of 70.67.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), CSTM is given a 2.30 while 2.80 placed for AGCO. This means that analysts are more bullish on the outlook for AGCO stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for CSTM is 0.75 while that of AGCO is just 4.52. This means that analysts are more bullish on the forecast for CSTM stock.

Conclusion

The stock of AGCO Corporation defeats that of Constellium N.V. when the two are compared, with AGCO taking 4 out of the total factors that were been considered. AGCO happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, AGCO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AGCO is better on when it is viewed on short interest.

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