Target Corporation (NYSE:TGT) shares are up more than 34.99% this year and recently decreased -0.64% or -$0.57 to settle at $88.08. Xilinx, Inc. (NASDAQ:XLNX), on the other hand, is up 14.71% year to date as of 09/13/2018. It currently trades at $77.34 and has returned -0.90% during the past week.
Target Corporation (NYSE:TGT) and Xilinx, Inc. (NASDAQ:XLNX) are the two most active stocks in the Discount, Variety Stores 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect TGT to grow earnings at a 7.50% annual rate over the next 5 years. Comparatively, XLNX is expected to grow at a 15.90% annual rate. All else equal, XLNX’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 33.95% for Xilinx, Inc. (XLNX). TGT’s ROI is 13.20% while XLNX has a ROI of 18.20%. The interpretation is that XLNX’s business generates a higher return on investment than TGT’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. TGT’s free cash flow (“FCF”) per share for the trailing twelve months was +1.58. Comparatively, XLNX’s free cash flow per share was +0.23. On a percent-of-sales basis, TGT’s free cash flow was 1.16% while XLNX converted 2.29% of its revenues into cash flow. This means that, for a given level of sales, XLNX is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. TGT has a current ratio of 0.80 compared to 4.40 for XLNX. This means that XLNX can more easily cover its most immediate liabilities over the next twelve months. TGT’s debt-to-equity ratio is 1.00 versus a D/E of 0.74 for XLNX. TGT is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TGT trades at a forward P/E of 15.65, a P/B of 4.19, and a P/S of 0.63, compared to a forward P/E of 23.51, a P/B of 8.42, and a P/S of 7.58 for XLNX. TGT 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. TGT is currently priced at a -1.1% to its one-year price target of 89.06. Comparatively, XLNX is -2.36% relative to its price target of 79.21. This suggests that XLNX is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. TGT has a beta of 0.67 and XLNX’s beta is 0.98. TGT’s shares are therefore the less volatile of the two stocks.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. TGT has a short ratio of 6.42 compared to a short interest of 2.16 for XLNX. This implies that the market is currently less bearish on the outlook for XLNX.Summary
Xilinx, Inc. (NASDAQ:XLNX) beats Target Corporation (NYSE:TGT) on a total of 9 of the 14 factors compared between the two stocks. XLNX has higher cash flow per share, is more profitable, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, TGT is the cheaper of the two stocks on an earnings, book value and sales basis, XLNX is more undervalued relative to its price target. Finally, XLNX has better sentiment signals based on short interest.