Hecla Mining Company (NYSE:HL) and Coeur Mining, Inc. (NYSE:CDE) are the two most active stocks in the Silver industry based on today’s 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.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Hecla Mining Company (HL) has an EBITDA margin of 25.08%, compared to an EBITDA margin of 29.24% for Coeur Mining, Inc. (CDE). This suggests that CDE underlying business is more profitable. HL’s ROI is 4.50% while CDE has a ROI of 10.30%. The interpretation is that CDE’s business generates a higher return on investment than HL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. HL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.05. Comparatively, CDE’s free cash flow per share was -0.05. On a percent-of-sales basis, HL’s free cash flow was -0% while CDE converted -0% of its revenues into cash flow. This means that, for a given level of sales, HL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. HL has a current ratio of 2.60 compared to 4.10 for CDE. This means that CDE can more easily cover its most immediate liabilities over the next twelve months. HL’s debt-to-equity ratio is 0.34 versus a D/E of 0.37 for CDE. CDE is therefore the more solvent of the two companies, and has lower financial risk.
HL trades at a forward P/E of 26.51, a P/B of 1.36, and a P/S of 3.30, compared to a forward P/E of 21.27, a P/B of 2.16, and a P/S of 2.40 for CDE. HL is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. HL is currently priced at a -12.07% to its one-year price target of $5.88. Comparatively, CDE is -19.35% relative to its price target of $11.63. This suggests that CDE is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.90 for HL and 2.30 for CDE, which implies that analysts are more bullish on the outlook for HL.
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. HL has a beta of 0.33 and CDE’s beta is 0.40. HL’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. HL has a short ratio of 3.71 compared to a short interest of 4.69 for CDE. This implies that the market is currently less bearish on the outlook for HL.
Coeur Mining, Inc. (NYSE:CDE) beats Hecla Mining Company (NYSE:HL) on a total of 7 of the 13 factors compared between the two stocks. CDE has lower financial risk, generates a higher return on investment and higher liquidity. In terms of valuation, CDE is the cheaper of the two stocks on an earnings and sales basis, CDE is more undervalued relative to its price target. Finally, TER has better sentiment signals based on short interest.