Finance

NIKE, Inc. (NKE) vs. Altice USA, Inc. (ATUS): Breaking Down the Two Hottest Stocks

NIKE, Inc. (NYSE:NKE) shares are up more than 21.17% this year and recently decreased -2.76% or -$2.15 to settle at $75.79. Altice USA, Inc. (NYSE:ATUS), on the other hand, is down -7.24% year to date as of 12/04/2018. It currently trades at $17.70 and has returned 5.73% during the past week.

NIKE, Inc. (NYSE:NKE) and Altice USA, Inc. (NYSE:ATUS) 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. Analysts expect NKE to grow earnings at a 14.06% annual rate over the next 5 years. Comparatively, ATUS is expected to grow at a 6.62% annual rate. All else equal, NKE’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. NIKE, Inc. (NKE) has an EBITDA margin of 14.12%. This suggests that NKE underlying business is more profitable NKE’s ROI is 30.00% while ATUS has a ROI of 2.80%. The interpretation is that NKE’s business generates a higher return on investment than ATUS’s.

Cash Flow



Cash is king when it comes to investing. NKE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.39. Comparatively, ATUS’s free cash flow per share was +0.38. On a percent-of-sales basis, NKE’s free cash flow was 1.7% while ATUS converted 2.91% of its revenues into cash flow. This means that, for a given level of sales, ATUS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NKE has a current ratio of 2.30 compared to 0.40 for ATUS. This means that NKE can more easily cover its most immediate liabilities over the next twelve months. NKE’s debt-to-equity ratio is 0.39 versus a D/E of 6.01 for ATUS. ATUS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NKE trades at a forward P/E of 24.15, a P/B of 13.44, and a P/S of 3.20, compared to a forward P/E of 41.16, a P/B of 3.38, and a P/S of 1.34 for ATUS. NKE 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. NKE is currently priced at a -13.33% to its one-year price target of 87.45. Comparatively, ATUS is -29.57% relative to its price target of 25.13. This suggests that ATUS is the better investment over the next year.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. NKE has a short ratio of 1.27 compared to a short interest of 2.56 for ATUS. This implies that the market is currently less bearish on the outlook for NKE.

Summary




NIKE, Inc. (NYSE:NKE) beats Altice USA, Inc. (NYSE:ATUS) on a total of 8 of the 14 factors compared between the two stocks. NKE is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. Finally, NKE has better sentiment signals based on short interest.

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