Earnings

Uncovering the next great stocks: Gogo Inc. (GOGO), Sumitomo Mitsui Financial Group, Inc. (SMFG)

The shares of Gogo Inc. have decreased by more than -65.07% this year alone. The shares recently went down by -8.80% or -$0.38 and now trades at $3.94. The shares of Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG), has slumped by -19.10% year to date as of 12/04/2018. The shares currently trade at $7.03 and have been able to report a change of -4.09% over the past one week.

The stock of Gogo Inc. and Sumitomo Mitsui Financial Group, 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.

Next 5Y EPS Growth: 10.00% versus 0.60%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that GOGO will grow it’s earning at a 10.00% annual rate in the next 5 years. This is in contrast to SMFG which will have a positive growth at a 0.60% annual rate. This means that the higher growth rate of GOGO implies a greater potential for capital appreciation over the years.

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. GOGO has an EBITDA margin of 14.52%, this implies that the underlying business of GOGO is more profitable. The ROI of GOGO is -7.30% while that of SMFG is 3.40%. These figures suggest that SMFG ventures generate a higher ROI than that of GOGO.

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, GOGO’s free cash flow per share is a negative -0.01.

Valuation

GOGO currently trades at a P/S of 0.41 while SMFG trades at a forward P/E of 6.63, a P/B of 0.52, and a P/S of 2.43. This means that looking at the earnings, book values and sales basis, GOGO 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 GOGO is currently at a -42.31% to its one-year price target of 6.83. Looking at its rival pricing, SMFG is at a -44.78% relative to its price target of 12.73.




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), GOGO is given a 3.30 while 1.00 placed for SMFG. This means that analysts are more bullish on the outlook for GOGO 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 GOGO is 14.94 while that of SMFG is just 2.35. This means that analysts are more bullish on the forecast for SMFG stock.

Conclusion

The stock of Sumitomo Mitsui Financial Group, Inc. defeats that of Gogo Inc. when the two are compared, with SMFG taking 6 out of the total factors that were been considered. SMFG 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, SMFG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for SMFG is better on when it is viewed on short interest.

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