Avon Products, Inc. (NYSE:AVP) shares are down more than -62.70% this year and recently decreased -2.08% or -$0.04 to settle at $1.88. Energizer Holdings, Inc. (NYSE:ENR), on the other hand, is down -0.92% year to date as of 11/13/2017. It currently trades at $44.20 and has returned 5.64% during the past week.
Avon Products, Inc. (NYSE:AVP) and Energizer Holdings, Inc. (NYSE:ENR) are the two most active stocks in the Personal Products industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, ENR is expected to grow at a 7.15% annual rate. All else equal, ENR’s higher growth rate would imply a greater potential for capital appreciation.
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 20.57% for Energizer Holdings, Inc. (ENR). AVP’s ROI is 19.00% while ENR has a ROI of 17.20%. The interpretation is that AVP’s business generates a higher return on investment than ENR’s.
The value of a stock is simply the present value of its future free cash flows. AVP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, ENR’s free cash flow per share was +0.43. On a percent-of-sales basis, AVP’s free cash flow was 0% while ENR converted 1.63% of its revenues into cash flow. This means that, for a given level of sales, ENR 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. AVP has a current ratio of 1.40 compared to 1.90 for ENR. This means that ENR can more easily cover its most immediate liabilities over the next twelve months.
AVP trades at a forward P/E of 9.54, and a P/S of 0.14, compared to a forward P/E of 13.69, a P/B of 31.35, and a P/S of 1.52 for ENR. AVP is the cheaper of the two stocks on an earnings, book value and sales basis. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AVP is currently priced at a -29.32% to its one-year price target of 2.66. Comparatively, ENR is -14.07% relative to its price target of 51.44. This suggests that AVP 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 AVP and 2.20 for ENR, which implies that analysts are more bullish on the outlook for AVP.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. AVP has a short ratio of 2.90 compared to a short interest of 9.47 for ENR. This implies that the market is currently less bearish on the outlook for AVP.
Energizer Holdings, Inc. (NYSE:ENR) beats Avon Products, Inc. (NYSE:AVP) on a total of 7 of the 14 factors compared between the two stocks. ENR generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, AVP is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CL has better sentiment signals based on short interest.