Comcast Corporation (NASDAQ:CMCSA) shares are up more than 14.47% this year and recently decreased -1.82% or -$0.72 to settle at $38.80. AMC Networks Inc. (NASDAQ:AMCX), on the other hand, is up 6.36% year to date as of 12/05/2017. It currently trades at $53.77 and has returned 9.87% during the past week.
Comcast Corporation (NASDAQ:CMCSA) and AMC Networks Inc. (NASDAQ:AMCX) are the two most active stocks in the Entertainment – Diversified 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect CMCSA to grow earnings at a 8.60% annual rate over the next 5 years. Comparatively, AMCX is expected to grow at a 8.68% annual rate. All else equal, AMCX’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 29.16% for AMC Networks Inc. (AMCX). CMCSA’s ROI is 10.00% while AMCX has a ROI of 15.60%. The interpretation is that AMCX’s business generates a higher return on investment than CMCSA’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CMCSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.40. Comparatively, AMCX’s free cash flow per share was +1.33. On a percent-of-sales basis, CMCSA’s free cash flow was 2.33% while AMCX converted 2.99% of its revenues into cash flow. This means that, for a given level of sales, AMCX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CMCSA has a current ratio of 0.70 compared to 2.60 for AMCX. This means that AMCX can more easily cover its most immediate liabilities over the next twelve months. CMCSA’s debt-to-equity ratio is 1.17 versus a D/E of 57.53 for AMCX. AMCX is therefore the more solvent of the two companies, and has lower financial risk.
CMCSA trades at a forward P/E of 17.83, a P/B of 3.35, and a P/S of 2.19, compared to a forward P/E of 7.97, a P/B of 65.49, and a P/S of 1.24 for AMCX. CMCSA 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CMCSA is currently priced at a -13.41% to its one-year price target of 44.81. Comparatively, AMCX is -6.89% relative to its price target of 57.75. This suggests that CMCSA 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 1.70 for CMCSA and 2.60 for AMCX, which implies that analysts are more bullish on the outlook for AMCX.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CMCSA has a beta of 1.01 and AMCX’s beta is 1.11. CMCSA’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. CMCSA has a short ratio of 2.42 compared to a short interest of 9.68 for AMCX. This implies that the market is currently less bearish on the outlook for CMCSA.
AMC Networks Inc. (NASDAQ:AMCX) beats Comcast Corporation (NASDAQ:CMCSA) on a total of 7 of the 14 factors compared between the two stocks. AMCX is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, AMCX is the cheaper of the two stocks on an earnings and sales basis, Finally, LGF-A has better sentiment signals based on short interest.