The shares of CSX Corporation have increased by more than 18.16% this year alone. The shares recently went up by 0.99% or $0.64 and now trades at $65.00. The shares of Red Hat, Inc. (NYSE:RHT), has jumped by 14.00% year to date as of 07/06/2018. The shares currently trade at $136.92 and have been able to report a change of 1.66% over the past one week.
The stock of CSX Corporation and Red Hat, 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: 18.89% versus 16.92%
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 CSX will grow it’s earning at a 18.89% annual rate in the next 5 years. This is in contrast to RHT which will have a positive growth at a 16.92% annual rate. This means that the higher growth rate of CSX 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. CSX has an EBITDA margin of 46.85%, this implies that the underlying business of CSX is more profitable. The ROI of CSX is 9.40% while that of RHT is 17.00%. These figures suggest that RHT ventures generate a higher ROI than that of CSX.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, CSX’s free cash flow per share is a positive 3.45, while that of RHT is positive 10.65.Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CSX is 1.90 and that of RHT is 1.40. This implies that it is easier for CSX to cover its immediate obligations over the next 12 months than RHT. The debt ratio of CSX is 0.96 compared to 0.52 for RHT. CSX can be able to settle its long-term debts and thus is a lower financial risk than RHT.Valuation
CSX currently trades at a forward P/E of 17.19, a P/B of 4.00, and a P/S of 4.90 while RHT trades at a forward P/E of 34.44, a P/B of 16.50, and a P/S of 7.93. This means that looking at the earnings, book values and sales basis, CSX 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 CSX is currently at a -3.99% to its one-year price target of 67.70. Looking at its rival pricing, RHT is at a -17.06% relative to its price target of 165.08.
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), CSX is given a 2.20 while 2.30 placed for RHT. This means that analysts are more bullish on the outlook for RHT 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 CSX is 2.56 while that of RHT is just 3.29. This means that analysts are more bullish on the forecast for CSX stock.
The stock of Red Hat, Inc. defeats that of CSX Corporation when the two are compared, with RHT taking 6 out of the total factors that were been considered. RHT 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, RHT is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for RHT is better on when it is viewed on short interest.