V.F. Corporation (NYSE:VFC) shares are up more than 23.26% this year and recently increased 1.74% or $1.56 to settle at $91.21. The Toronto-Dominion Bank (NYSE:TD), on the other hand, is up 3.26% year to date as of 09/13/2018. It currently trades at $60.49 and has returned -0.10% during the past week.
V.F. Corporation (NYSE:VFC) and The Toronto-Dominion Bank (NYSE:TD) are the two most active stocks in the Textile – Apparel Clothing 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect VFC to grow earnings at a 13.17% annual rate over the next 5 years. Comparatively, TD is expected to grow at a 8.14% annual rate. All else equal, VFC’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. V.F. Corporation (VFC) has an EBITDA margin of 11.73%. This suggests that VFC underlying business is more profitable VFC’s ROI is 3.70% while TD has a ROI of 20.70%. The interpretation is that TD’s business generates a higher return on investment than VFC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. VFC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.07. Comparatively, TD’s free cash flow per share was +10.24. On a percent-of-sales basis, VFC’s free cash flow was 0.91% while TD converted 54.24% of its revenues into cash flow. This means that, for a given level of sales, TD is able to generate more free cash flow for investors.Liquidity and Financial Risk
VFC’s debt-to-equity ratio is 0.93 versus a D/E of 0.10 for TD. VFC is therefore the more solvent of the two companies, and has lower financial risk.
VFC trades at a forward P/E of 22.14, a P/B of 9.63, and a P/S of 2.91, compared to a forward P/E of 11.46, a P/B of 2.02, and a P/S of 4.25 for TD. VFC is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. VFC is currently priced at a -9.42% to its one-year price target of 100.70. Comparatively, TD is -5.66% relative to its price target of 64.12. This suggests that VFC 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. VFC has a beta of 0.98 and TD’s beta is 0.97. TD’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. VFC has a short ratio of 2.97 compared to a short interest of 3.96 for TD. This implies that the market is currently less bearish on the outlook for VFC.Summary
The Toronto-Dominion Bank (NYSE:TD) beats V.F. Corporation (NYSE:VFC) on a total of 7 of the 14 factors compared between the two stocks. TD is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, TD is the cheaper of the two stocks on an earnings and book value, Finally, PGR has better sentiment signals based on short interest.