The Kroger Co. (NYSE:KR) shares are up more than 4.55% this year and recently increased 1.70% or $0.48 to settle at $28.70. Sanofi American Depositary Shar (NYSE:SNY), on the other hand, is down -5.42% year to date as of 07/04/2018. It currently trades at $40.67 and has returned 1.19% during the past week.
The Kroger Co. (NYSE:KR) and Sanofi American Depositary Shar (NYSE:SNY) are the two most active stocks in the Grocery Stores industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect KR to grow earnings at a 6.55% annual rate over the next 5 years. Comparatively, SNY is expected to grow at a 6.60% annual rate. All else equal, SNY’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. The Kroger Co. (KR) has an EBITDA margin of 5.49%. This suggests that KR underlying business is more profitable KR’s ROI is 7.00% while SNY has a ROI of 7.20%. The interpretation is that SNY’s business generates a higher return on investment than KR’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. KR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.65. Comparatively, SNY’s free cash flow per share was -. On a percent-of-sales basis, KR’s free cash flow was 1.07% while SNY converted 0% of its revenues into cash flow. This means that, for a given level of sales, KR is able to generate more free cash flow for investors.Valuation
KR trades at a forward P/E of 12.69, a P/B of 3.63, and a P/S of 0.20, compared to a forward P/E of 11.43, a P/B of 1.43, and a P/S of 2.48 for SNY. KR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. KR is currently priced at a 4.63% to its one-year price target of 27.43. Comparatively, SNY is -7.57% relative to its price target of 44.00. This suggests that SNY 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. KR has a beta of 1.03 and SNY’s beta is 0.81. SNY’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. KR has a short ratio of 4.26 compared to a short interest of 1.06 for SNY. This implies that the market is currently less bearish on the outlook for SNY.Summary
Sanofi American Depositary Shar (NYSE:SNY) beats The Kroger Co. (NYSE:KR) on a total of 9 of the 14 factors compared between the two stocks. SNY is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, SNY is the cheaper of the two stocks on an earnings and book value, SNY is more undervalued relative to its price target. Finally, SNY has better sentiment signals based on short interest.