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Should You Buy Newell Brands Inc. (NWL) or Tesla, Inc. (TSLA)?

Newell Brands Inc. (NYSE:NWL) shares are down more than -23.82% this year and recently decreased -2.61% or -$0.63 to settle at $23.54. Tesla, Inc. (NASDAQ:TSLA), on the other hand, is up 15.53% year to date as of 12/04/2018. It currently trades at $359.70 and has returned 4.59% during the past week.

Newell Brands Inc. (NYSE:NWL) and Tesla, Inc. (NASDAQ:TSLA) are the two most active stocks based on recent trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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. Analysts expect NWL to grow earnings at a 6.43% annual rate over the next 5 years. Comparatively, TSLA is expected to grow at a 35.00% annual rate. All else equal, TSLA’s higher growth rate would imply a greater 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 Return on Investment (ROI) as measures of profitability and return. NWL’s ROI is 4.50% while TSLA has a ROI of -6.50%. The interpretation is that NWL’s business generates a higher return on investment than TSLA’s.

Cash Flow



Cash is king when it comes to investing. NWL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.83. Comparatively, TSLA’s free cash flow per share was +4.67. On a percent-of-sales basis, NWL’s free cash flow was 2.63% while TSLA converted 6.82% of its revenues into cash flow. This means that, for a given level of sales, TSLA 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. NWL has a current ratio of 3.00 compared to 0.80 for TSLA. This means that NWL can more easily cover its most immediate liabilities over the next twelve months. NWL’s debt-to-equity ratio is 1.60 versus a D/E of 2.61 for TSLA. TSLA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NWL trades at a forward P/E of 10.58, a P/B of 1.85, and a P/S of 1.11, compared to a forward P/E of 54.98, a P/B of 13.64, and a P/S of 3.43 for TSLA. NWL is the cheaper of the two stocks on an earnings, book value and sales basis. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. NWL is currently priced at a 1.16% to its one-year price target of 23.27. Comparatively, TSLA is 9.78% relative to its price target of 327.67. This suggests that NWL 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. NWL has a beta of 0.82 and TSLA’s beta is 0.59. TSLA’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. NWL has a short ratio of 5.40 compared to a short interest of 2.95 for TSLA. This implies that the market is currently less bearish on the outlook for TSLA.

Summary

Newell Brands Inc. (NYSE:NWL) beats Tesla, Inc. (NASDAQ:TSLA) on a total of 8 of the 14 factors compared between the two stocks. NWL generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, NWL is the cheaper of the two stocks on an earnings, book value and sales basis, NWL is more undervalued relative to its price target.

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