Finance

EnLink Midstream Partners, LP (ENLK) vs. DENTSPLY SIRONA Inc. (XRAY): Which is the Better Investment?

EnLink Midstream Partners, LP (NYSE:ENLK) shares are down more than -13.60% this year and recently decreased -1.12% or -$0.15 to settle at $13.28. DENTSPLY SIRONA Inc. (NASDAQ:XRAY), on the other hand, is down -43.92% year to date as of 11/20/2018. It currently trades at $36.92 and has returned 0.57% during the past week.

EnLink Midstream Partners, LP (NYSE:ENLK) and DENTSPLY SIRONA Inc. (NASDAQ:XRAY) are the two most active stocks based on recent 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, XRAY is expected to grow at a -1.69% annual rate. All else equal, ENLK’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. EnLink Midstream Partners, LP (ENLK) has an EBITDA margin of 9.17%. This suggests that ENLK underlying business is more profitable ENLK’s ROI is 4.90% while XRAY has a ROI of -18.00%. The interpretation is that ENLK’s business generates a higher return on investment than XRAY’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. ENLK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.82. Comparatively, XRAY’s free cash flow per share was +0.25. On a percent-of-sales basis, ENLK’s free cash flow was -5.04% while XRAY converted 1.39% of its revenues into cash flow. This means that, for a given level of sales, XRAY 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. ENLK has a current ratio of 0.80 compared to 1.80 for XRAY. This means that XRAY can more easily cover its most immediate liabilities over the next twelve months. ENLK’s debt-to-equity ratio is 1.68 versus a D/E of 0.34 for XRAY. ENLK is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ENLK trades at a forward P/E of 35.89, a P/B of 1.86, and a P/S of 0.63, compared to a forward P/E of 16.61, a P/B of 1.60, and a P/S of 2.05 for XRAY. ENLK is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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. ENLK is currently priced at a -25.35% to its one-year price target of 17.79. Comparatively, XRAY is -20.99% relative to its price target of 46.73. This suggests that ENLK is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ENLK has a beta of 2.12 and XRAY’s beta is 1.17. XRAY’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. ENLK has a short ratio of 5.29 compared to a short interest of 2.52 for XRAY. This implies that the market is currently less bearish on the outlook for XRAY.

Summary

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) beats EnLink Midstream Partners, LP (NYSE:ENLK) on a total of 9 of the 14 factors compared between the two stocks. XRAY is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, XRAY is the cheaper of the two stocks on an earnings and book value, Finally, XRAY has better sentiment signals based on short interest.

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