PPL Corporation (NYSE:PPL) shares are down more than -0.39% this year and recently increased 1.08% or $0.33 to settle at $30.83. Vodafone Group Plc (NASDAQ:VOD), on the other hand, is down -38.56% year to date as of 11/16/2018. It currently trades at $19.60 and has returned 4.31% during the past week.
PPL Corporation (NYSE:PPL) and Vodafone Group Plc (NASDAQ:VOD) are the two most active stocks in the Electric Utilities industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PPL to grow earnings at a 4.31% annual rate over the next 5 years. Comparatively, VOD is expected to grow at a 13.20% annual rate. All else equal, VOD’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. PPL Corporation (PPL) has an EBITDA margin of 57.24%. This suggests that PPL underlying business is more profitable PPL’s ROI is 8.10% while VOD has a ROI of 4.80%. The interpretation is that PPL’s business generates a higher return on investment than VOD’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. PPL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.31. Comparatively, VOD’s free cash flow per share was -. On a percent-of-sales basis, PPL’s free cash flow was -3% while VOD converted 0% of its revenues into cash flow. This means that, for a given level of sales, VOD is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PPL has a current ratio of 0.60 compared to 1.30 for VOD. This means that VOD can more easily cover its most immediate liabilities over the next twelve months. PPL’s debt-to-equity ratio is 1.85 versus a D/E of 0.80 for VOD. PPL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PPL trades at a forward P/E of 12.65, a P/B of 1.84, and a P/S of 2.86, compared to a forward P/E of 14.38, a P/B of 0.78, and a P/S of 1.01 for VOD. PPL is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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
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. PPL is currently priced at a -2% to its one-year price target of 31.46. Comparatively, VOD is -23.44% relative to its price target of 25.60. This suggests that VOD is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. PPL has a beta of 0.44 and VOD’s beta is 0.89. PPL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. PPL has a short ratio of 9.69 compared to a short interest of 0.52 for VOD. This implies that the market is currently less bearish on the outlook for VOD.Summary
Vodafone Group Plc (NASDAQ:VOD) beats PPL Corporation (NYSE:PPL) on a total of 10 of the 14 factors compared between the two stocks. VOD is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, VOD is the cheaper of the two stocks on book value and sales basis, VOD is more undervalued relative to its price target. Finally, VOD has better sentiment signals based on short interest.