Global

Dissecting the Numbers for Alta Mesa Resources, Inc. (AMR) and Arcos Dorados Holdings Inc. (ARCO)

Alta Mesa Resources, Inc. (NASDAQ:AMR) shares are down more than -50.96% this year and recently increased 1.89% or $0.09 to settle at $4.86. Arcos Dorados Holdings Inc. (NYSE:ARCO), on the other hand, is down -40.10% year to date as of 09/11/2018. It currently trades at $6.20 and has returned -4.62% during the past week.

Alta Mesa Resources, Inc. (NASDAQ:AMR) and Arcos Dorados Holdings Inc. (NYSE:ARCO) are the two most active stocks in the Major Airlines industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, ARCO is expected to grow at a 11.90% annual rate. All else equal, ARCO’s higher growth rate would imply a greater potential for capital appreciation.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AMR has a current ratio of 0.90 compared to 1.10 for ARCO. This means that ARCO can more easily cover its most immediate liabilities over the next twelve months. AMR’s debt-to-equity ratio is 0.40 versus a D/E of 1.62 for ARCO. ARCO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AMR trades at a forward P/E of 8.87, a P/B of 0.53, and a P/S of 4.83, compared to a forward P/E of 14.29, a P/B of 3.30, and a P/S of 0.38 for ARCO. 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. AMR is currently priced at a -44.77% to its one-year price target of 8.80. Comparatively, ARCO is -43.38% relative to its price target of 10.95. This suggests that AMR is the better investment over the next year.

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. AMR has a short ratio of 7.46 compared to a short interest of 2.29 for ARCO. This implies that the market is currently less bearish on the outlook for ARCO.

Summary

Alta Mesa Resources, Inc. (NASDAQ:AMR) beats Arcos Dorados Holdings Inc. (NYSE:ARCO) on a total of 6 of the 13 factors compared between the two stocks. AMR has higher cash flow per share and has lower financial risk. In terms of valuation, AMR is the cheaper of the two stocks on an earnings and book value, AMR is more undervalued relative to its price target. Finally, ACHN has better sentiment signals based on short interest.

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