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Century Aluminum Company (CENX) vs. Ballard Power Systems Inc. (BLDP): Which is the Better Investment?

Century Aluminum Company (NASDAQ:CENX) shares are down more than -38.70% this year and recently decreased -1.23% or -$0.15 to settle at $12.04. Ballard Power Systems Inc. (NASDAQ:BLDP), on the other hand, is down -21.32% year to date as of 09/11/2018. It currently trades at $3.47 and has returned -10.10% during the past week.

Century Aluminum Company (NASDAQ:CENX) and Ballard Power Systems Inc. (NASDAQ:BLDP) are the two most active stocks in the Aluminum 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

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, BLDP is expected to grow at a 0.03% annual rate. All else equal, BLDP’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Century Aluminum Company (CENX) has an EBITDA margin of 10.59%. This suggests that CENX underlying business is more profitable CENX’s ROI is 7.30% while BLDP has a ROI of -6.30%. The interpretation is that CENX’s business generates a higher return on investment than BLDP’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. CENX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, BLDP’s free cash flow per share was -0.13. On a percent-of-sales basis, CENX’s free cash flow was -0.44% while BLDP converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, BLDP 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. CENX has a current ratio of 2.90 compared to 2.60 for BLDP. This means that CENX can more easily cover its most immediate liabilities over the next twelve months. CENX’s debt-to-equity ratio is 0.30 versus a D/E of 0.05 for BLDP. CENX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CENX trades at a forward P/E of 6.16, a P/B of 1.24, and a P/S of 0.62, compared to a P/B of 5.51, and a P/S of 5.31 for BLDP. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CENX is currently priced at a -41.27% to its one-year price target of 20.50. Comparatively, BLDP is -28.45% relative to its price target of 4.85. This suggests that CENX is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CENX has a beta of 0.75 and BLDP’s beta is 1.60. CENX’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. CENX has a short ratio of 2.36 compared to a short interest of 9.82 for BLDP. This implies that the market is currently less bearish on the outlook for CENX.

Summary

Century Aluminum Company (NASDAQ:CENX) beats Ballard Power Systems Inc. (NASDAQ:BLDP) on a total of 9 of the 14 factors compared between the two stocks. CENX is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, CENX is the cheaper of the two stocks on book value and sales basis, CENX is more undervalued relative to its price target. Finally, CENX has better sentiment signals based on short interest.

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