Global

Critical Comparison: GameStop Corp. (GME) vs. Harmony Gold Mining Company Limited (HMY)

GameStop Corp. (NYSE:GME) shares are down more than -9.97% this year and recently increased 1.00% or $0.16 to settle at $16.16. Harmony Gold Mining Company Limited (NYSE:HMY), on the other hand, is down -6.42% year to date as of 09/11/2018. It currently trades at $1.75 and has returned 3.55% during the past week.

GameStop Corp. (NYSE:GME) and Harmony Gold Mining Company Limited (NYSE:HMY) are the two most active stocks in the Electronics Stores 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 GME to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, HMY is expected to grow at a 0.00% annual rate. All else equal, GME’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. GameStop Corp. (GME) has an EBITDA margin of 2.65%. This suggests that GME underlying business is more profitable GME’s ROI is 4.40% while HMY has a ROI of 1.00%. The interpretation is that GME’s business generates a higher return on investment than HMY’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, GME’s free cash flow was 0% while HMY converted 32.97% of its revenues into cash flow. This means that, for a given level of sales, HMY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. GME has a current ratio of 1.50 compared to 2.20 for HMY. This means that HMY can more easily cover its most immediate liabilities over the next twelve months. GME’s debt-to-equity ratio is 0.37 versus a D/E of 0.09 for HMY. GME is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

GME trades at a forward P/E of 5.75, a P/B of 0.75, and a P/S of 0.18, compared to a forward P/E of 7.00, a P/B of 0.40, and a P/S of 0.65 for HMY. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. GME is currently priced at a 11.07% to its one-year price target of 14.55. Comparatively, HMY is -27.69% relative to its price target of 2.42. This suggests that HMY is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. GME has a beta of 1.24 and HMY’s beta is -2.06. HMY’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. GME has a short ratio of 8.98 compared to a short interest of 0.89 for HMY. This implies that the market is currently less bearish on the outlook for HMY.

Summary

Harmony Gold Mining Company Limited (NYSE:HMY) beats GameStop Corp. (NYSE:GME) on a total of 8 of the 14 factors compared between the two stocks. HMY is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. HMY is more undervalued relative to its price target. Finally, HMY has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

MGM Resorts International (MGM) and ImmunoGen, Inc... MGM Resorts International (NYSE:MGM) shares are down more than -8.00% this year and recently decreased -1.60% or -$0.5 to settle at $30.72. ImmunoGen,...
Should You Buy iQIYI, Inc. (IQ) or IAC/InterActive... iQIYI, Inc. (NASDAQ:IQ) shares are up more than 94.79% this year and recently increased 5.95% or $1.7 to settle at $30.29. IAC/InterActiveCorp (NASDAQ...
Noble Energy, Inc. (NBL) vs. Senseonics Holdings, ... Noble Energy, Inc. (NYSE:NBL) shares are up more than 5.63% this year and recently decreased -1.44% or -$0.45 to settle at $30.78. Senseonics Holdings...
Navient Corporation (NAVI) and Entegris, Inc. (ENT... Navient Corporation (NASDAQ:NAVI) shares are up more than 2.55% this year and recently decreased -0.87% or -$0.12 to settle at $13.66. Entegris, Inc. ...
Penumbra, Inc. (PEN) and Cutera, Inc. (CUTR) Go He... Penumbra, Inc. (NYSE:PEN) shares are up more than 32.47% this year and recently decreased -16.09% or -$23.9 to settle at $124.65. Cutera, Inc. (NASDAQ...