SunPower Corporation (NASDAQ:SPWR) shares are down more than -18.39% this year and recently increased 6.50% or $0.42 to settle at $6.88. Sears Holdings Corporation (NASDAQ:SHLD), on the other hand, is down -61.17% year to date as of 09/11/2018. It currently trades at $1.39 and has returned 6.92% during the past week.
SunPower Corporation (NASDAQ:SPWR) and Sears Holdings Corporation (NASDAQ:SHLD) are the two most active stocks in the Semiconductor – Specialized industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 0.08% for Sears Holdings Corporation (SHLD). SPWR’s ROI is -26.60% while SHLD has a ROI of -74.40%. The interpretation is that SPWR’s business generates a higher return on investment than SHLD’s.Cash Flow
Cash is king when it comes to investing. SPWR’s free cash flow (“FCF”) per share for the trailing twelve months was -1.02. Comparatively, SHLD’s free cash flow per share was -10.78. On a percent-of-sales basis, SPWR’s free cash flow was -7.68% while SHLD converted -6.99% of its revenues into cash flow. This means that, for a given level of sales, SHLD 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. SPWR has a current ratio of 1.80 compared to 0.80 for SHLD. This means that SPWR can more easily cover its most immediate liabilities over the next twelve months.Valuation
SPWR trades at a P/B of 27.52, and a P/S of 0.50, compared to a P/S of 0.01 for SHLD. 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. SPWR is currently priced at a -14.11% to its one-year price target of 8.01. Comparatively, SHLD is -30.5% relative to its price target of 2.00. This suggests that SHLD is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SPWR has a beta of 1.98 and SHLD’s beta is 0.09. SHLD’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. SPWR has a short ratio of 11.12 compared to a short interest of 9.71 for SHLD. This implies that the market is currently less bearish on the outlook for SHLD.Summary
Sears Holdings Corporation (NASDAQ:SHLD) beats SunPower Corporation (NASDAQ:SPWR) on a total of 8 of the 14 factors compared between the two stocks. SHLD generates a higher return on investment, has a higher cash conversion rate and has lower financial risk. In terms of valuation, SHLD is the cheaper of the two stocks on book value and sales basis, SHLD is more undervalued relative to its price target. Finally, SHLD has better sentiment signals based on short interest.