Magna International Inc. (NYSE:MGA) shares are down more than -16.25% this year and recently decreased -6.24% or -$3.16 to settle at $47.46. Tellurian Inc. (NASDAQ:TELL), on the other hand, is down -27.41% year to date as of 12/04/2018. It currently trades at $7.07 and has returned 0.86% during the past week.
Magna International Inc. (NYSE:MGA) and Tellurian Inc. (NASDAQ:TELL) are the two most active stocks based on recent trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MGA to grow earnings at a 4.70% annual rate over the next 5 years. Comparatively, TELL is expected to grow at a 47.30% annual rate. All else equal, TELL’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. MGA’s ROI is 15.10% while TELL has a ROI of -106.60%. The interpretation is that MGA’s business generates a higher return on investment than TELL’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, MGA’s free cash flow was 1.89% while TELL converted 0% of its revenues into cash flow. This means that, for a given level of sales, MGA 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. MGA has a current ratio of 1.20 compared to 4.60 for TELL. This means that TELL can more easily cover its most immediate liabilities over the next twelve months. MGA’s debt-to-equity ratio is 0.42 versus a D/E of 0.00 for TELL. MGA is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MGA trades at a forward P/E of 6.54, a P/B of 1.47, and a P/S of 0.38, compared to a P/B of 4.71, and a P/S of 123.52 for TELL. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. MGA is currently priced at a -24.82% to its one-year price target of 63.13. Comparatively, TELL is -41.08% relative to its price target of 12.00. This suggests that TELL is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. MGA has a beta of 1.34 and TELL’s beta is 1.75. MGA’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. MGA has a short ratio of 2.60 compared to a short interest of 15.40 for TELL. This implies that the market is currently less bearish on the outlook for MGA.Summary
Magna International Inc. (NYSE:MGA) beats Tellurian Inc. (NASDAQ:TELL) on a total of 7 of the 14 factors compared between the two stocks. MGA generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, MGA is the cheaper of the two stocks on book value and sales basis, Finally, MGA has better sentiment signals based on short interest.