CMS Energy Corporation (NYSE:CMS) shares are up more than 18.48% this year and recently increased 0.22% or $0.11 to settle at $49.42. Ameren Corporation (NYSE:AEE), on the other hand, is up 19.10% year to date as of 12/05/2017. It currently trades at $62.66 and has returned -2.15% during the past week.

CMS Energy Corporation (NYSE:CMS) and Ameren Corporation (NYSE:AEE) are the two most active stocks in the Electric Utilities 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.

**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 CMS to grow earnings at a 7.44% annual rate over the next 5 years. Comparatively, AEE is expected to grow at a 7.00% annual rate. All else equal, CMS’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., compared to an EBITDA margin of 42.46% for Ameren Corporation (AEE). CMS’s ROI is 7.20% while AEE has a ROI of 6.70%. The interpretation is that CMS’s business generates a higher return on investment than AEE’s.

**Cash Flow **

Cash is king when it comes to investing. CMS’s free cash flow (“FCF”) per share for the trailing twelve months was -1.69. Comparatively, AEE’s free cash flow per share was +0.60. On a percent-of-sales basis, CMS’s free cash flow was -7.45% while AEE converted 2.4% of its revenues into cash flow. This means that, for a given level of sales, AEE 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. CMS has a current ratio of 0.90 compared to 0.60 for AEE. This means that CMS can more easily cover its most immediate liabilities over the next twelve months. CMS’s debt-to-equity ratio is 2.28 versus a D/E of 1.11 for AEE. CMS is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

CMS trades at a forward P/E of 21.17, a P/B of 3.05, and a P/S of 2.15, compared to a forward P/E of 20.68, a P/B of 2.06, and a P/S of 2.47 for AEE. CMS 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**

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. CMS is currently priced at a -1.65% to its one-year price target of 50.25. Comparatively, AEE is 5.24% relative to its price target of 59.54. This suggests that CMS 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 2.40 for CMS and 2.70 for AEE, which implies that analysts are more bullish on the outlook for AEE.

**Risk and Volatility**

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CMS has a beta of 0.18 and AEE’s beta is 0.39. CMS’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. CMS has a short ratio of 2.57 compared to a short interest of 4.90 for AEE. This implies that the market is currently less bearish on the outlook for CMS.

**Summary**

CMS Energy Corporation (NYSE:CMS) beats Ameren Corporation (NYSE:AEE) on a total of 8 of the 14 factors compared between the two stocks. CMS is growing fastly, generates a higher return on investment and higher liquidity. CMS is more undervalued relative to its price target. Finally, CMS has better sentiment signals based on short interest.