Abercrombie & Fitch Co. (NYSE:ANF) shares are up more than 18.47% this year and recently increased 0.93% or $0.19 to settle at $20.65. Nevsun Resources Ltd. (NYSE:NSU), on the other hand, is up 81.15% year to date as of 09/11/2018. It currently trades at $4.42 and has returned 18.18% during the past week.
Abercrombie & Fitch Co. (NYSE:ANF) and Nevsun Resources Ltd. (NYSE:NSU) are the two most active stocks in the Apparel Stores industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ANF to grow earnings at a 18.00% annual rate over the next 5 years.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Abercrombie & Fitch Co. (ANF) has an EBITDA margin of 8.96%. This suggests that ANF underlying business is more profitable ANF’s ROI is 3.20% while NSU has a ROI of -12.30%. The interpretation is that ANF’s business generates a higher return on investment than NSU’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, ANF’s free cash flow was 0% while NSU converted -0% of its revenues into cash flow. This means that, for a given level of sales, ANF is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. ANF has a current ratio of 2.50 compared to 3.40 for NSU. This means that NSU can more easily cover its most immediate liabilities over the next twelve months. ANF’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for NSU. ANF is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ANF trades at a forward P/E of 21.09, a P/B of 1.20, and a P/S of 0.41, compared to a forward P/E of 110.50, a P/B of 1.69, and a P/S of 4.03 for NSU. ANF 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. ANF is currently priced at a -9.55% to its one-year price target of 22.83. Comparatively, NSU is 38.99% relative to its price target of 3.18. This suggests that ANF 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. ANF has a beta of 0.44 and NSU’s beta is 0.32. NSU’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ANF has a short ratio of 4.95 compared to a short interest of 1.23 for NSU. This implies that the market is currently less bearish on the outlook for NSU.Summary
Abercrombie & Fitch Co. (NYSE:ANF) beats Nevsun Resources Ltd. (NYSE:NSU) on a total of 8 of the 14 factors compared between the two stocks. ANF is growing fastly, is more profitable, generates a higher return on investment and has higher cash flow per share. In terms of valuation, ANF is the cheaper of the two stocks on an earnings, book value and sales basis, ANF is more undervalued relative to its price target. Finally, CDMO has better sentiment signals based on short interest.