Mueller Water Products, Inc. (NYSE:MWA) shares are down more than -9.02% this year and recently increased 1.06% or $0.12 to settle at $11.40. Brookdale Senior Living Inc. (NYSE:BKD), on the other hand, is down -2.78% year to date as of 09/11/2018. It currently trades at $9.43 and has returned -2.48% during the past week.
Mueller Water Products, Inc. (NYSE:MWA) and Brookdale Senior Living Inc. (NYSE:BKD) are the two most active stocks in the Industrial Equipment & Components 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 MWA to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, BKD is expected to grow at a 10.00% annual rate. All else equal, MWA’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. Mueller Water Products, Inc. (MWA) has an EBITDA margin of 17.23%. This suggests that MWA underlying business is more profitable MWA’s ROI is 7.90% while BKD has a ROI of -5.70%. The interpretation is that MWA’s business generates a higher return on investment than BKD’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. MWA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.30. Comparatively, BKD’s free cash flow per share was +0.08. On a percent-of-sales basis, MWA’s free cash flow was 0.01% while BKD converted 0.32% of its revenues into cash flow. This means that, for a given level of sales, BKD is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. MWA has a current ratio of 5.10 compared to 0.70 for BKD. This means that MWA can more easily cover its most immediate liabilities over the next twelve months. MWA’s debt-to-equity ratio is 0.83 versus a D/E of 5.23 for BKD. BKD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MWA trades at a forward P/E of 17.95, a P/B of 3.35, and a P/S of 2.03, compared to a P/B of 1.92, and a P/S of 0.37 for BKD. MWA is the expensive 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. MWA is currently priced at a -15.56% to its one-year price target of 13.50. Comparatively, BKD is -1.57% relative to its price target of 9.58. This suggests that MWA 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. MWA has a beta of 1.05 and BKD’s beta is 1.68. MWA’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. MWA has a short ratio of 2.11 compared to a short interest of 9.34 for BKD. This implies that the market is currently less bearish on the outlook for MWA.Summary
Mueller Water Products, Inc. (NYSE:MWA) beats Brookdale Senior Living Inc. (NYSE:BKD) on a total of 9 of the 14 factors compared between the two stocks. MWA is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. MWA is more undervalued relative to its price target. Finally, MWA has better sentiment signals based on short interest.