Finance

Comparing Freeport-McMoRan Inc. (FCX) and Evolus, Inc. (EOLS)

Freeport-McMoRan Inc. (NYSE:FCX) shares are down more than -16.67% this year and recently decreased -7.49% or -$1.28 to settle at $15.80. Evolus, Inc. (NASDAQ:EOLS), on the other hand, is up 71.74% year to date as of 07/19/2018. It currently trades at $19.75 and has returned -26.88% during the past week.

Freeport-McMoRan Inc. (NYSE:FCX) and Evolus, Inc. (NASDAQ:EOLS) are the two most active stocks in the Copper industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect FCX to grow earnings at a 21.98% annual rate over the next 5 years. Comparatively, EOLS is expected to grow at a 53.00% annual rate. All else equal, EOLS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Freeport-McMoRan Inc. (FCX) has an EBITDA margin of 26.72%. This suggests that FCX underlying business is more profitable

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. FCX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.66. Comparatively, EOLS’s free cash flow per share was -0.11.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. FCX has a current ratio of 2.30 compared to 13.80 for EOLS. This means that EOLS can more easily cover its most immediate liabilities over the next twelve months. FCX’s debt-to-equity ratio is 1.34 versus a D/E of 0.31 for EOLS. FCX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FCX trades at a forward P/E of 13.47, a P/B of 2.65, and a P/S of 1.32, compared to a P/B of 8.98, for EOLS. FCX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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 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. FCX is currently priced at a -23% to its one-year price target of 20.52. Comparatively, EOLS is -35.25% relative to its price target of 30.50. This suggests that EOLS is the better investment over the next year.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. FCX has a short ratio of 2.04 compared to a short interest of 3.55 for EOLS. This implies that the market is currently less bearish on the outlook for FCX.

Summary




Evolus, Inc. (NASDAQ:EOLS) beats Freeport-McMoRan Inc. (NYSE:FCX) on a total of 8 of the 13 factors compared between the two stocks. EOLS is more profitable, higher liquidity and has lower financial risk. In terms of valuation, EOLS is the cheaper of the two stocks on an earnings and sales basis, EOLS is more undervalued relative to its price target. Finally, IQ has better sentiment signals based on short interest.

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