Lattice Semiconductor Corporation (NASDAQ:LSCC) shares are up more than 20.93% this year and recently increased 7.37% or $0.48 to settle at $6.99. Western Gas Partners, LP (NYSE:WES), on the other hand, is down -5.86% year to date as of 12/06/2018. It currently trades at $45.27 and has returned 1.41% during the past week.
Lattice Semiconductor Corporation (NASDAQ:LSCC) and Western Gas Partners, LP (NYSE:WES) 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect LSCC to grow earnings at a 20.00% 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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 48.57% for Western Gas Partners, LP (WES). LSCC’s ROI is -9.30% while WES has a ROI of 9.80%. The interpretation is that WES’s business generates a higher return on investment than LSCC’s.Cash Flow
Cash is king when it comes to investing. LSCC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.07. Comparatively, WES’s free cash flow per share was -1.85. On a percent-of-sales basis, LSCC’s free cash flow was 0% while WES converted -12.56% of its revenues into cash flow. This means that, for a given level of sales, LSCC 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. LSCC has a current ratio of 4.00 compared to 0.70 for WES. This means that LSCC can more easily cover its most immediate liabilities over the next twelve months. LSCC’s debt-to-equity ratio is 1.05 versus a D/E of 1.35 for WES. WES is therefore the more solvent of the two companies, and has lower financial risk.Valuation
LSCC trades at a forward P/E of 18.49, a P/B of 3.43, and a P/S of 2.25, compared to a forward P/E of 13.02, a P/B of 2.04, and a P/S of 3.35 for WES. LSCC 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
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. LSCC is currently priced at a -12.63% to its one-year price target of 8.00. Comparatively, WES is -20.2% relative to its price target of 56.73. This suggests that WES 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. LSCC has a beta of 1.83 and WES’s beta is 1.28. WES’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. LSCC has a short ratio of 2.12 compared to a short interest of 5.30 for WES. This implies that the market is currently less bearish on the outlook for LSCC.Summary
Lattice Semiconductor Corporation (NASDAQ:LSCC) beats Western Gas Partners, LP (NYSE:WES) on a total of 8 of the 14 factors compared between the two stocks. LSCC is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, LSCC has better sentiment signals based on short interest.