Earnings

Set Sail With Mallinckrodt Public Limited Company (MNK), CommScope Holding Company, Inc. (COMM)

The shares of Mallinckrodt Public Limited Company have increased by more than 16.00% this year alone. The shares recently went down by -1.36% or -$0.36 and now trades at $26.17. The shares of CommScope Holding Company, Inc. (NASDAQ:COMM), has slumped by -33.44% year to date as of 10/11/2018. The shares currently trade at $25.18 and have been able to report a change of -14.44% over the past one week.

The stock of Mallinckrodt Public Limited Company and CommScope Holding Company, Inc. were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 9.17% versus 11.56%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that MNK will grow it’s earning at a 9.17% annual rate in the next 5 years. This is in contrast to COMM which will have a positive growth at a 11.56% annual rate. This means that the higher growth rate of COMM implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. MNK has an EBITDA margin of 29.85%, this implies that the underlying business of MNK is more profitable. The ROI of MNK is 12.60% while that of COMM is 8.00%. These figures suggest that MNK ventures generate a higher ROI than that of COMM.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, MNK’s free cash flow per share is a positive 6.56, while that of COMM is positive 1.77.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for MNK is 2.30 and that of COMM is 2.80. This implies that it is easier for MNK to cover its immediate obligations over the next 12 months than COMM. The debt ratio of MNK is 0.98 compared to 0.00 for COMM. MNK can be able to settle its long-term debts and thus is a lower financial risk than COMM.

Valuation

MNK currently trades at a forward P/E of 3.49, a P/B of 0.34, and a P/S of 0.78 while COMM trades at a forward P/E of 9.46, a P/B of 2.84, and a P/S of 1.11. This means that looking at the earnings, book values and sales basis, MNK is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of MNK is currently at a -16.26% to its one-year price target of 31.25. Looking at its rival pricing, COMM is at a -27.97% relative to its price target of 34.96.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), MNK is given a 2.90 while 2.10 placed for COMM. This means that analysts are more bullish on the outlook for MNK stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for MNK is 7.64 while that of COMM is just 6.53. This means that analysts are more bullish on the forecast for COMM stock.

Conclusion

The stock of Mallinckrodt Public Limited Company defeats that of CommScope Holding Company, Inc. when the two are compared, with MNK taking 7 out of the total factors that were been considered. MNK happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, MNK is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for MNK is better on when it is viewed on short interest.

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