Earnings

Set Sail With Patterson Companies, Inc. (PDCO), Zscaler, Inc. (ZS)

The shares of Patterson Companies, Inc. have decreased by more than -32.00% this year alone. The shares recently went down by -3.38% or -$0.86 and now trades at $24.57. The shares of Zscaler, Inc. (NASDAQ:ZS), has jumped by 12.76% year to date as of 12/04/2018. The shares currently trade at $37.21 and have been able to report a change of 7.51% over the past one week.

The stock of Patterson Companies, Inc. and Zscaler, Inc. were two of the most active stocks on Tuesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. PDCO has an EBITDA margin of 4.67%, this implies that the underlying business of PDCO is more profitable. The ROI of PDCO is 6.70% while that of ZS is -15.00%. These figures suggest that PDCO ventures generate a higher ROI than that of ZS.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, PDCO’s free cash flow per share is a positive 3.19, while that of ZS is positive 0.01.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for PDCO is 1.80 and that of ZS is 2.10. This implies that it is easier for PDCO to cover its immediate obligations over the next 12 months than ZS. The debt ratio of PDCO is 0.59 compared to 0.00 for ZS. PDCO can be able to settle its long-term debts and thus is a lower financial risk than ZS.

Valuation

PDCO currently trades at a forward P/E of 15.73, a P/B of 1.57, and a P/S of 0.41 while ZS trades at a forward P/E of 1431.15, a P/B of 18.42, and a P/S of 22.85. This means that looking at the earnings, book values and sales basis, PDCO is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of PDCO is currently at a 8.67% to its one-year price target of 22.61. Looking at its rival pricing, ZS is at a -14.71% relative to its price target of 43.63.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), PDCO is given a 3.10 while 2.30 placed for ZS. This means that analysts are more bullish on the outlook for PDCO stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for PDCO is 9.75 while that of ZS is just 3.26. This means that analysts are more bullish on the forecast for ZS stock.

Conclusion

The stock of Zscaler, Inc. defeats that of Patterson Companies, Inc. when the two are compared, with ZS taking 6 out of the total factors that were been considered. ZS happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ZS is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ZS is better on when it is viewed on short interest.

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