McEwen Mining Inc. (NYSE:MUX) shares are down more than -4.39% this year and recently increased 5.31% or $0.11 to settle at $2.18. Avon Products, Inc. (NYSE:AVP), on the other hand, is down -14.42% year to date as of 10/11/2018. It currently trades at $1.84 and has returned -10.24% during the past week.
McEwen Mining Inc. (NYSE:MUX) and Avon Products, Inc. (NYSE:AVP) are the two most active stocks in the Gold 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, AVP is expected to grow at a 5.00% annual rate. All else equal, AVP’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 7.03% for Avon Products, Inc. (AVP). MUX’s ROI is 3.30% while AVP has a ROI of 12.60%. The interpretation is that AVP’s business generates a higher return on investment than MUX’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. MUX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, AVP’s free cash flow per share was -0.07. On a percent-of-sales basis, MUX’s free cash flow was -0.03% while AVP converted -0.54% of its revenues into cash flow. This means that, for a given level of sales, MUX 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. MUX has a current ratio of 1.50 compared to 1.30 for AVP. This means that MUX can more easily cover its most immediate liabilities over the next twelve months.Valuation
MUX trades at a forward P/E of 62.29, a P/B of 1.44, and a P/S of 6.50, compared to a forward P/E of 10.76, and a P/S of 0.15 for AVP. MUX 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. MUX is currently priced at a -36.99% to its one-year price target of 3.46. Comparatively, AVP is -23.65% relative to its price target of 2.41. This suggests that MUX 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. MUX has a beta of -1.13 and AVP’s beta is 1.45. MUX’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MUX has a short ratio of 25.17 compared to a short interest of 2.41 for AVP. This implies that the market is currently less bearish on the outlook for AVP.Summary
Avon Products, Inc. (NYSE:AVP) beats McEwen Mining Inc. (NYSE:MUX) on a total of 8 of the 14 factors compared between the two stocks. AVP has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, AVP is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, AVP has better sentiment signals based on short interest.