PACCAR Inc (NASDAQ:PCAR) shares are up more than 14.13% this year and recently increased 0.10% or $0.07 to settle at $72.93. Navistar International Corporation (NYSE:NAV), on the other hand, is up 39.43% year to date as of 10/12/2017. It currently trades at $43.74 and has returned -0.88% during the past week.

PACCAR Inc (NASDAQ:PCAR) and Navistar International Corporation (NYSE:NAV) are the two most active stocks in the Trucks & Other Vehicles industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

**Growth**

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect PCAR to grow earnings at a 7.22% annual rate over the next 5 years. Comparatively, NAV is expected to grow at a 5.00% annual rate. All else equal, PCAR’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 3.65% for Navistar International Corporation (NAV). PCAR’s ROI is 3.10% while NAV has a ROI of -60.90%. The interpretation is that PCAR’s business generates a higher return on investment than NAV’s.

**Cash Flow **

Earnings don’t always accurately reflect the amount of cash that a company brings in. PCAR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, NAV’s free cash flow per share was -1.00. On a percent-of-sales basis, PCAR’s free cash flow was 0% while NAV converted -1.21% of its revenues into cash flow. This means that, for a given level of sales, PCAR 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. PCAR has a current ratio of 4.90 compared to 1.20 for NAV. This means that PCAR can more easily cover its most immediate liabilities over the next twelve months.

**Valuation**

PCAR trades at a forward P/E of 16.49, a P/B of 3.42, and a P/S of 1.48, compared to a forward P/E of 22.18, and a P/S of 0.53 for NAV. PCAR is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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**

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. PCAR is currently priced at a -2.7% to its one-year price target of 74.95. Comparatively, NAV is 13.05% relative to its price target of 38.69. This suggests that PCAR 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 2.50 for PCAR and 2.70 for NAV, which implies that analysts are more bullish on the outlook for NAV.

**Risk and Volatility**

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. PCAR has a beta of 1.25 and NAV’s beta is 2.77. PCAR’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. PCAR has a short ratio of 4.38 compared to a short interest of 10.79 for NAV. This implies that the market is currently less bearish on the outlook for PCAR.

**Summary**

PACCAR Inc (NASDAQ:PCAR) beats Navistar International Corporation (NYSE:NAV) on a total of 10 of the 14 factors compared between the two stocks. PCAR is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. PCAR is more undervalued relative to its price target. Finally, PCAR has better sentiment signals based on short interest.