HP Inc. (NYSE:HPQ) shares are up more than 19.04% this year and recently increased 1.67% or $0.41 to settle at $25.01. Schlumberger Limited (NYSE:SLB), on the other hand, is down -9.45% year to date as of 09/13/2018. It currently trades at $61.02 and has returned 1.35% during the past week.
HP Inc. (NYSE:HPQ) and Schlumberger Limited (NYSE:SLB) are the two most active stocks in the Diversified Computer Systems 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.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect HPQ to grow earnings at a 9.78% annual rate over the next 5 years. Comparatively, SLB is expected to grow at a 43.40% annual rate. All else equal, SLB’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 20.08% for Schlumberger Limited (SLB). HPQ’s ROI is 62.80% while SLB has a ROI of -1.90%. The interpretation is that HPQ’s business generates a higher return on investment than SLB’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HPQ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.73. Comparatively, SLB’s free cash flow per share was -0.16. On a percent-of-sales basis, HPQ’s free cash flow was 2.22% while SLB converted -0.73% of its revenues into cash flow. This means that, for a given level of sales, HPQ 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. HPQ has a current ratio of 0.90 compared to 1.10 for SLB. This means that SLB can more easily cover its most immediate liabilities over the next twelve months.Valuation
HPQ trades at a forward P/E of 11.51, and a P/S of 0.69, compared to a forward P/E of 22.33, a P/B of 2.31, and a P/S of 2.64 for SLB. HPQ is the cheaper 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
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. HPQ is currently priced at a -7.61% to its one-year price target of 27.07. Comparatively, SLB is -21.17% relative to its price target of 77.41. This suggests that SLB is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. HPQ has a beta of 1.65 and SLB’s beta is 0.96. SLB’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. HPQ has a short ratio of 2.49 compared to a short interest of 2.65 for SLB. This implies that the market is currently less bearish on the outlook for HPQ.Summary
HP Inc. (NYSE:HPQ) beats Schlumberger Limited (NYSE:SLB) on a total of 8 of the 14 factors compared between the two stocks. HPQ generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HPQ is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HPQ has better sentiment signals based on short interest.