Global

AngloGold Ashanti Limited (AU) and Six Flags Entertainment Corporation (SIX) Go Head-to-head

AngloGold Ashanti Limited (NYSE:AU) shares are down more than -3.63% this year and recently decreased -0.51% or -$0.05 to settle at $9.82. Six Flags Entertainment Corporation (NYSE:SIX), on the other hand, is down -12.14% year to date as of 11/20/2018. It currently trades at $58.49 and has returned 2.98% during the past week.

AngloGold Ashanti Limited (NYSE:AU) and Six Flags Entertainment Corporation (NYSE:SIX) are the two most active stocks based on recent trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect AU to grow earnings at a 25.90% annual rate over the next 5 years. Comparatively, SIX is expected to grow at a 6.30% annual rate. All else equal, AU’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 47.12% for Six Flags Entertainment Corporation (SIX). AU’s ROI is -0.60% while SIX has a ROI of 21.90%. The interpretation is that SIX’s business generates a higher return on investment than AU’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. AU’s free cash flow (“FCF”) per share for the trailing twelve months was +8.35. Comparatively, SIX’s free cash flow per share was +1.39. On a percent-of-sales basis, AU’s free cash flow was 78.48% while SIX converted 8.63% of its revenues into cash flow. This means that, for a given level of sales, AU 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. AU has a current ratio of 1.80 compared to 0.90 for SIX. This means that AU can more easily cover its most immediate liabilities over the next twelve months.

Valuation

AU trades at a forward P/E of 13.83, a P/B of 1.57, and a P/S of 0.91, compared to a forward P/E of 20.30, and a P/S of 3.40 for SIX. 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”. AU is currently priced at a -29.96% to its one-year price target of 14.02. Comparatively, SIX is -10.29% relative to its price target of 65.20. This suggests that AU is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. AU has a beta of -1.07 and SIX’s beta is 1.19. AU’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. AU has a short ratio of 3.87 compared to a short interest of 4.20 for SIX. This implies that the market is currently less bearish on the outlook for AU.

Summary

AngloGold Ashanti Limited (NYSE:AU) beats Six Flags Entertainment Corporation (NYSE:SIX) on a total of 9 of the 14 factors compared between the two stocks. AU is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, AU is the cheaper of the two stocks on an earnings and sales basis, AU is more undervalued relative to its price target. Finally, AU has better sentiment signals based on short interest.

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