Teradyne, Inc. (NASDAQ:TER) shares are down more than -17.63% this year and recently decreased -4.09% or -$1.47 to settle at $34.49. Avista Corporation (NYSE:AVA), on the other hand, is down -0.19% year to date as of 12/04/2018. It currently trades at $51.39 and has returned -1.96% during the past week.
Teradyne, Inc. (NASDAQ:TER) and Avista Corporation (NYSE:AVA) are the two most active stocks based on recent trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 TER to grow earnings at a 10.68% annual rate over the next 5 years. Comparatively, AVA is expected to grow at a 5.65% annual rate. All else equal, TER’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 32.71% for Avista Corporation (AVA). TER’s ROI is 19.30% while AVA has a ROI of 5.80%. The interpretation is that TER’s business generates a higher return on investment than AVA’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. TER’s free cash flow (“FCF”) per share for the trailing twelve months was +1.08. Comparatively, AVA’s free cash flow per share was -0.71. On a percent-of-sales basis, TER’s free cash flow was 9.06% while AVA converted -3.23% of its revenues into cash flow. This means that, for a given level of sales, TER 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. TER has a current ratio of 4.10 compared to 0.70 for AVA. This means that TER can more easily cover its most immediate liabilities over the next twelve months. TER’s debt-to-equity ratio is 0.23 versus a D/E of 1.11 for AVA. AVA is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TER trades at a forward P/E of 14.07, a P/B of 3.84, and a P/S of 3.11, compared to a forward P/E of 23.20, a P/B of 1.93, and a P/S of 2.38 for AVA. TER 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
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”. TER is currently priced at a -10.69% to its one-year price target of 38.62. Comparatively, AVA is 10.52% relative to its price target of 46.50. This suggests that TER is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. TER has a beta of 1.28 and AVA’s beta is 0.13. AVA’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. TER has a short ratio of 4.52 compared to a short interest of 6.67 for AVA. This implies that the market is currently less bearish on the outlook for TER.Summary
Teradyne, Inc. (NASDAQ:TER) beats Avista Corporation (NYSE:AVA) on a total of 10 of the 14 factors compared between the two stocks. TER is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. TER is more undervalued relative to its price target. Finally, TER has better sentiment signals based on short interest.