Earnings

A Comparison of Top Movers: Caterpillar Inc. (CAT), Avaya Holdings Corp. (AVYA)

The shares of Caterpillar Inc. have decreased by more than -12.10% this year alone. The shares recently went down by -0.85% or -$1.19 and now trades at $138.52. The shares of Avaya Holdings Corp. (NYSE:AVYA), has jumped by 17.83% year to date as of 08/09/2018. The shares currently trade at $20.68 and have been able to report a change of 1.97% over the past one week.

The stock of Caterpillar Inc. and Avaya Holdings Corp. were two of the most active stocks on Thursday. 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.

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. CAT has an EBITDA margin of 19.09%, this implies that the underlying business of CAT is more profitable. The ROI of CAT is 7.30% while that of AVYA is -1.40%. These figures suggest that CAT ventures generate a higher ROI than that of AVYA.

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, CAT’s free cash flow per share is a positive 1.99, while that of AVYA is positive 1.17.

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 CAT is 1.40 and that of AVYA is 1.00. This implies that it is easier for CAT to cover its immediate obligations over the next 12 months than AVYA. The debt ratio of CAT is 2.32 compared to 1.66 for AVYA. CAT can be able to settle its long-term debts and thus is a lower financial risk than AVYA.

Valuation

CAT currently trades at a forward P/E of 10.91, a P/B of 5.45, and a P/S of 1.62 while AVYA trades at a forward P/E of 6.21, a P/B of 1.29, and a P/S of 0.76. This means that looking at the earnings, book values and sales basis, AVYA 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. Looking at its rival pricing, AVYA is at a -31.07% relative to its price target of 30.00.

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 CAT is 1.62 while that of AVYA is just 5.95. This means that analysts are more bullish on the forecast for CAT stock.

Conclusion

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

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