Micron Technology, Inc. (NASDAQ:MU) shares are up more than 41.61% this year and recently decreased -1.61% or -$0.95 to settle at $58.23. National Oilwell Varco, Inc. (NYSE:NOV), on the other hand, is up 15.16% year to date as of 06/15/2018. It currently trades at $41.48 and has returned -2.58% during the past week.
Micron Technology, Inc. (NASDAQ:MU) and National Oilwell Varco, Inc. (NYSE:NOV) are the two most active stocks in the Semiconductor- Memory Chips 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 MU to grow earnings at a 35.72% annual rate over the next 5 years. Comparatively, NOV is expected to grow at a 47.00% annual rate. All else equal, NOV’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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 6.4% for National Oilwell Varco, Inc. (NOV). MU’s ROI is 19.20% while NOV has a ROI of -2.20%. The interpretation is that MU’s business generates a higher return on investment than NOV’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. MU’s free cash flow (“FCF”) per share for the trailing twelve months was +1.69. Comparatively, NOV’s free cash flow per share was -0.50. On a percent-of-sales basis, MU’s free cash flow was 9.65% while NOV converted -2.62% of its revenues into cash flow. This means that, for a given level of sales, MU is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. MU has a current ratio of 2.60 compared to 3.40 for NOV. This means that NOV can more easily cover its most immediate liabilities over the next twelve months. MU’s debt-to-equity ratio is 0.36 versus a D/E of 0.19 for NOV. MU is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MU trades at a forward P/E of 5.36, a P/B of 2.62, and a P/S of 2.53, compared to a forward P/E of 38.66, a P/B of 1.11, and a P/S of 2.14 for NOV. MU is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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. MU is currently priced at a -24.17% to its one-year price target of 76.79. Comparatively, NOV is 11.15% relative to its price target of 37.32. This suggests that MU is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MU has a beta of 1.47 and NOV’s beta is 0.83. NOV’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MU has a short ratio of 1.11 compared to a short interest of 6.96 for NOV. This implies that the market is currently less bearish on the outlook for MU.Summary
Micron Technology, Inc. (NASDAQ:MU) beats National Oilwell Varco, Inc. (NYSE:NOV) on a total of 8 of the 14 factors compared between the two stocks. MU is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. MU is more undervalued relative to its price target. Finally, MU has better sentiment signals based on short interest.