Ensco plc (NYSE:ESV) shares are down more than -1.69% this year and recently decreased -5.53% or -$0.34 to settle at $5.81. Novavax, Inc. (NASDAQ:NVAX), on the other hand, is up 63.71% year to date as of 12/04/2018. It currently trades at $2.03 and has returned 13.41% during the past week.
Ensco plc (NYSE:ESV) and Novavax, Inc. (NASDAQ:NVAX) 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, NVAX is expected to grow at a 0.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar potential for capital appreciation..Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Ensco plc (ESV) has an EBITDA margin of 5.7%. This suggests that ESV underlying business is more profitable ESV’s ROI is -1.70% while NVAX has a ROI of -79.50%. The interpretation is that ESV’s business generates a higher return on investment than NVAX’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. ESV’s free cash flow (“FCF”) per share for the trailing twelve months was -0.24. Comparatively, NVAX’s free cash flow per share was -0.09. On a percent-of-sales basis, ESV’s free cash flow was -5.69% while NVAX converted -0.11% of its revenues into cash flow. This means that, for a given level of sales, NVAX 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. ESV has a current ratio of 2.60 compared to 3.40 for NVAX. This means that NVAX can more easily cover its most immediate liabilities over the next twelve months.Valuation
ESV trades at a P/B of 0.30, and a P/S of 1.56, compared to a P/S of 20.11 for NVAX. ESV 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
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. ESV is currently priced at a -34.42% to its one-year price target of 8.86. Comparatively, NVAX is -51.67% relative to its price target of 4.20. This suggests that NVAX is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. ESV has a beta of 1.87 and NVAX’s beta is 2.46. ESV’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. ESV has a short ratio of 6.50 compared to a short interest of 8.51 for NVAX. This implies that the market is currently less bearish on the outlook for ESV.Summary
Novavax, Inc. (NASDAQ:NVAX) beats Ensco plc (NYSE:ESV) on a total of 7 of the 14 factors compared between the two stocks. NVAX is more profitable, has a higher cash conversion rate, higher liquidity and has lower financial risk. NVAX is more undervalued relative to its price target. Finally, WFT has better sentiment signals based on short interest.