Companhia Brasileira de Distribuicao (NYSE:CBD) shares are down more than -5.10% this year and recently increased 1.23% or $0.27 to settle at $22.15. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), on the other hand, is down -13.41% year to date as of 12/06/2018. It currently trades at $12.08 and has returned -4.05% during the past week.
Companhia Brasileira de Distribuicao (NYSE:CBD) and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) are the two most active stocks based on recent trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CBD to grow earnings at a 7.60% annual rate over the next 5 years.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. CBD’s ROI is 8.20% while MNTA has a ROI of -24.70%. The interpretation is that CBD’s business generates a higher return on investment than MNTA’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CBD’s free cash flow (“FCF”) per share for the trailing twelve months was -5.45. Comparatively, MNTA’s free cash flow per share was -0.63. On a percent-of-sales basis, CBD’s free cash flow was -10.38% while MNTA converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, MNTA is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. CBD has a current ratio of 1.20 compared to 5.40 for MNTA. This means that MNTA can more easily cover its most immediate liabilities over the next twelve months. CBD’s debt-to-equity ratio is 0.63 versus a D/E of 0.00 for MNTA. CBD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CBD trades at a forward P/E of 18.23, a P/B of 2.11, and a P/S of 0.48, compared to a P/B of 3.75, and a P/S of 10.01 for MNTA. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CBD is currently priced at a -16.95% to its one-year price target of 26.67. Comparatively, MNTA is -54.12% relative to its price target of 26.33. This suggests that MNTA 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. CBD has a beta of 1.58 and MNTA’s beta is 2.33. CBD’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. CBD has a short ratio of 0.92 compared to a short interest of 3.31 for MNTA. This implies that the market is currently less bearish on the outlook for CBD.Summary
Companhia Brasileira de Distribuicao (NYSE:CBD) beats Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) on a total of 7 of the 14 factors compared between the two stocks. CBD is growing fastly and generates a higher return on investment. In terms of valuation, CBD is the cheaper of the two stocks on book value and sales basis, Finally, CBD has better sentiment signals based on short interest.