Global

AK Steel Holding Corporation (AKS) vs. Barrick Gold Corporation (ABX): Which is the Better Investment?

AK Steel Holding Corporation (NYSE:AKS) shares are down more than -17.49% this year and recently decreased -2.71% or -$0.13 to settle at $4.67. Barrick Gold Corporation (NYSE:ABX), on the other hand, is down -11.47% year to date as of 06/15/2018. It currently trades at $12.81 and has returned -1.61% during the past week.

AK Steel Holding Corporation (NYSE:AKS) and Barrick Gold Corporation (NYSE:ABX) are the two most active stocks in the Steel & Iron 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

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 AKS to grow earnings at a 22.14% annual rate over the next 5 years. Comparatively, ABX is expected to grow at a -4.45% annual rate. All else equal, AKS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. AK Steel Holding Corporation (AKS) has an EBITDA margin of 9.44%. This suggests that AKS underlying business is more profitable AKS’s ROI is 13.00% while ABX has a ROI of 11.10%. The interpretation is that AKS’s business generates a higher return on investment than ABX’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. AKS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, ABX’s free cash flow per share was +0.16. On a percent-of-sales basis, AKS’s free cash flow was 0.47% while ABX converted 2.23% of its revenues into cash flow. This means that, for a given level of sales, ABX is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AKS has a current ratio of 2.10 compared to 2.80 for ABX. This means that ABX can more easily cover its most immediate liabilities over the next twelve months.

Valuation

AKS trades at a forward P/E of 5.68, and a P/S of 0.24, compared to a forward P/E of 18.04, a P/B of 1.58, and a P/S of 1.83 for ABX. AKS 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 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. AKS is currently priced at a -16.16% to its one-year price target of 5.57. Comparatively, ABX is -19.74% relative to its price target of 15.96. This suggests that ABX 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. AKS has a beta of 2.82 and ABX’s beta is -0.28. ABX’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. AKS has a short ratio of 5.67 compared to a short interest of 1.20 for ABX. This implies that the market is currently less bearish on the outlook for ABX.

Summary

AK Steel Holding Corporation (NYSE:AKS) beats Barrick Gold Corporation (NYSE:ABX) on a total of 7 of the 14 factors compared between the two stocks. AKS is growing fastly, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, AKS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, GFI has better sentiment signals based on short interest.

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