Earnings

Which of 2 stocks would appeal to long-term investors? Allegheny Technologies Incorporated (ATI), Rowan Companies plc (RDC)

The shares of Allegheny Technologies Incorporated have increased by more than 12.18% this year alone. The shares recently went down by -4.07% or -$1.15 and now trades at $27.08. The shares of Rowan Companies plc (NYSE:RDC), has jumped by 5.17% year to date as of 11/08/2018. The shares currently trade at $16.47 and have been able to report a change of 2.94% over the past one week.

The stock of Allegheny Technologies Incorporated and Rowan Companies plc 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.

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. ATI has an EBITDA margin of 9.34%, this implies that the underlying business of RDC is more profitable. The ROI of ATI is 1.40% while that of RDC is 2.70%. These figures suggest that RDC ventures generate a higher ROI than that of ATI.

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, ATI’s free cash flow per share is a positive 1.25, while that of RDC is negative -2.38.

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 ATI is 2.90 and that of RDC is 3.00. This implies that it is easier for ATI to cover its immediate obligations over the next 12 months than RDC. The debt ratio of ATI is 0.78 compared to 0.49 for RDC. ATI can be able to settle its long-term debts and thus is a lower financial risk than RDC.

Valuation

ATI currently trades at a forward P/E of 12.39, a P/B of 1.71, and a P/S of 0.87 while RDC trades at a P/B of 0.41, and a P/S of 2.22. This means that looking at the earnings, book values and sales basis, ATI 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 ATI is currently at a -22.38% to its one-year price target of 34.89. Looking at its rival pricing, RDC is at a -17.19% relative to its price target of 19.89.




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), ATI is given a 2.20 while 2.50 placed for RDC. This means that analysts are more bullish on the outlook for RDC 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 ATI is 9.65 while that of RDC is just 2.80. This means that analysts are more bullish on the forecast for RDC stock.

Conclusion

The stock of Allegheny Technologies Incorporated defeats that of Rowan Companies plc when the two are compared, with ATI taking 6 out of the total factors that were been considered. ATI 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, ATI is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ATI is better on when it is viewed on short interest.

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