Sprint Corporation (NYSE:S) shares are up more than 4.58% this year and recently decreased -1.75% or -$0.11 to settle at $6.16. Canadian National Railway Company (NYSE:CNI), on the other hand, is down -0.53% year to date as of 12/04/2018. It currently trades at $82.06 and has returned -2.29% during the past week.
Sprint Corporation (NYSE:S) and Canadian National Railway Company (NYSE:CNI) 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
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect S to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, CNI is expected to grow at a 8.84% annual rate. All else equal, CNI’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., compared to an EBITDA margin of 19.46% for Canadian National Railway Company (CNI). S’s ROI is 3.90% while CNI has a ROI of 28.10%. The interpretation is that CNI’s business generates a higher return on investment than S’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. S’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, CNI’s free cash flow per share was +0.31. On a percent-of-sales basis, S’s free cash flow was -0.37% while CNI converted 2.25% of its revenues into cash flow. This means that, for a given level of sales, CNI is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. S has a current ratio of 1.10 compared to 0.70 for CNI. This means that S can more easily cover its most immediate liabilities over the next twelve months. S’s debt-to-equity ratio is 1.43 versus a D/E of 0.68 for CNI. S is therefore the more solvent of the two companies, and has lower financial risk.Valuation
S trades at a forward P/E of 125.71, a P/B of 0.88, and a P/S of 0.77, compared to a forward P/E of 17.50, a P/B of 4.54, and a P/S of 5.79 for CNI. 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”. S is currently priced at a 7.69% to its one-year price target of 5.72. Comparatively, CNI is -10.89% relative to its price target of 92.09. This suggests that CNI 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. S has a beta of 0.70 and CNI’s beta is 0.98. S’s shares are therefore the less volatile of the two stocks.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. S has a short ratio of 8.28 compared to a short interest of 2.47 for CNI. This implies that the market is currently less bearish on the outlook for CNI.Summary
Canadian National Railway Company (NYSE:CNI) beats Sprint Corporation (NYSE:S) on a total of 9 of the 14 factors compared between the two stocks. CNI is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. CNI is more undervalued relative to its price target. Finally, CNI has better sentiment signals based on short interest.