Earnings

Financial Metrics You Should Care About: Citigroup Inc. (C), HP Inc. (HPQ)

The shares of Citigroup Inc. have decreased by more than -9.69% this year alone. The shares recently went down by -0.64% or -$0.43 and now trades at $67.20. The shares of HP Inc. (NYSE:HPQ), has jumped by 13.28% year to date as of 06/22/2018. The shares currently trade at $23.80 and have been able to report a change of 0.89% over the past one week.

The stock of Citigroup Inc. and HP Inc. were two of the most active stocks on Friday. 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.

Next 5Y EPS Growth: 13.95% versus 9.20%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that C will grow it’s earning at a 13.95% annual rate in the next 5 years. This is in contrast to HPQ which will have a positive growth at a 9.20% annual rate. This means that the higher growth rate of C implies a greater potential for capital appreciation over the years.

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. C has an EBITDA margin of 61.87%, this implies that the underlying business of C is more profitable. The ROI of C is 7.60% while that of HPQ is 62.80%. These figures suggest that HPQ ventures generate a higher ROI than that of C.

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, C’s free cash flow per share is a positive 23.87, while that of HPQ is positive 1.33.

Valuation

C currently trades at a forward P/E of 9.08, a P/B of 0.94, and a P/S of 2.72 while HPQ trades at a forward P/E of 11.18, and a P/S of 0.70. This means that looking at the earnings, book values and sales basis, C 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 C is currently at a -19.88% to its one-year price target of 83.87. Looking at its rival pricing, HPQ is at a -7.21% relative to its price target of 25.65.




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), C is given a 2.10 while 2.20 placed for HPQ. This means that analysts are more bullish on the outlook for HPQ 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 C is 1.12 while that of HPQ is just 2.50. This means that analysts are more bullish on the forecast for C stock.

Conclusion

The stock of HP Inc. defeats that of Citigroup Inc. when the two are compared, with HPQ taking 5 out of the total factors that were been considered. HPQ 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, HPQ is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for HPQ is better on when it is viewed on short interest.

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