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A Side-by-side Analysis of Frontier Communications Corporation (FTR) and LiqTech International, Inc. (LIQT)

Frontier Communications Corporation (NASDAQ:FTR) shares are down more than -18.34% this year and recently increased 0.91% or $0.05 to settle at $5.52. LiqTech International, Inc. (NYSE:LIQT), on the other hand, is up 183.35% year to date as of 09/11/2018. It currently trades at $1.61 and has returned 17.52% during the past week.

Frontier Communications Corporation (NASDAQ:FTR) and LiqTech International, Inc. (NYSE:LIQT) are the two most active stocks in the Telecom Services – Domestic 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

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FTR to grow earnings at a 7.30% annual rate over the next 5 years. Comparatively, LIQT is expected to grow at a 25.00% annual rate. All else equal, LIQT’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Frontier Communications Corporation (FTR) has an EBITDA margin of 15.72%. This suggests that FTR underlying business is more profitable FTR’s ROI is -5.50% while LIQT has a ROI of -62.20%. The interpretation is that FTR’s business generates a higher return on investment than LIQT’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. FTR’s free cash flow (“FCF”) per share for the trailing twelve months was +4.50. Comparatively, LIQT’s free cash flow per share was -0.02. On a percent-of-sales basis, FTR’s free cash flow was 5.22% while LIQT converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, FTR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. FTR has a current ratio of 0.50 compared to 3.40 for LIQT. This means that LIQT can more easily cover its most immediate liabilities over the next twelve months. FTR’s debt-to-equity ratio is 7.26 versus a D/E of 0.00 for LIQT. FTR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FTR trades at a P/B of 0.18, and a P/S of 0.06, compared to a forward P/E of 53.67, a P/B of 10.06, and a P/S of 10.02 for LIQT. FTR is the cheaper of the two stocks on an earnings, book value and sales basis. 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. FTR is currently priced at a -12.1% to its one-year price target of 6.28. Comparatively, LIQT is 28.8% relative to its price target of 1.25. This suggests that FTR is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. FTR has a beta of 0.63 and LIQT’s beta is 0.61. LIQT’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. FTR has a short ratio of 8.64 compared to a short interest of 0.27 for LIQT. This implies that the market is currently less bearish on the outlook for LIQT.

Summary

Frontier Communications Corporation (NASDAQ:FTR) beats LiqTech International, Inc. (NYSE:LIQT) on a total of 8 of the 14 factors compared between the two stocks. FTR is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, FTR is the cheaper of the two stocks on an earnings, book value and sales basis, FTR is more undervalued relative to its price target. Finally, HSGX has better sentiment signals based on short interest.

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