CenturyLink, Inc. (NYSE:CTL) shares are up more than 9.23% this year and recently increased 0.22% or $0.04 to settle at $18.22. Molson Coors Brewing Company (NYSE:TAP), on the other hand, is down -24.99% year to date as of 05/29/2018. It currently trades at $61.56 and has returned 1.92% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Molson Coors Brewing Company (NYSE:TAP) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.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 CTL to grow earnings at a -14.31% annual rate over the next 5 years. Comparatively, TAP is expected to grow at a 7.06% annual rate. All else equal, TAP’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 20.29% for Molson Coors Brewing Company (TAP). CTL’s ROI is 2.90% while TAP has a ROI of 5.50%. The interpretation is that TAP’s business generates a higher return on investment than CTL’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, TAP’s free cash flow per share was +0.08. On a percent-of-sales basis, CTL’s free cash flow was 1.59% while TAP converted 0.16% of its revenues into cash flow. This means that, for a given level of sales, CTL 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. CTL has a current ratio of 0.90 compared to 0.50 for TAP. This means that CTL can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.59 versus a D/E of 0.83 for TAP. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 17.40, a P/B of 0.83, and a P/S of 1.03, compared to a forward P/E of 11.96, a P/B of 0.99, and a P/S of 1.23 for TAP. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CTL is currently priced at a -8.4% to its one-year price target of 19.89. Comparatively, TAP is -16.18% relative to its price target of 73.44. This suggests that TAP is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CTL has a beta of 0.78 and TAP’s beta is 0.73. TAP’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. CTL has a short ratio of 8.88 compared to a short interest of 2.17 for TAP. This implies that the market is currently less bearish on the outlook for TAP.Summary
Molson Coors Brewing Company (NYSE:TAP) beats CenturyLink, Inc. (NYSE:CTL) on a total of 8 of the 14 factors compared between the two stocks. TAP is more profitable, generates a higher return on investment and has lower financial risk. TAP is more undervalued relative to its price target. Finally, TAP has better sentiment signals based on short interest.