Newell Brands Inc. (NYSE:NWL) shares are down more than -28.82% this year and recently increased 0.53% or $0.17 to settle at $31.95. The Clorox Company (NYSE:CLX), on the other hand, is up 20.53% year to date as of 12/05/2017. It currently trades at $145.03 and has returned 5.62% during the past week.
Newell Brands Inc. (NYSE:NWL) and The Clorox Company (NYSE:CLX) are the two most active stocks in the Housewares & Accessories 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 NWL to grow earnings at a 5.88% annual rate over the next 5 years. Comparatively, CLX is expected to grow at a 6.33% annual rate. All else equal, CLX’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 21.51% for The Clorox Company (CLX). NWL’s ROI is 3.30% while CLX has a ROI of 25.70%. The interpretation is that CLX’s business generates a higher return on investment than NWL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. NWL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, CLX’s free cash flow per share was +0.77. On a percent-of-sales basis, NWL’s free cash flow was -0.22% while CLX converted 1.66% of its revenues into cash flow. This means that, for a given level of sales, CLX 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. NWL has a current ratio of 1.50 compared to 1.10 for CLX. This means that NWL can more easily cover its most immediate liabilities over the next twelve months. NWL’s debt-to-equity ratio is 0.90 versus a D/E of 3.72 for CLX. CLX is therefore the more solvent of the two companies, and has lower financial risk.
NWL trades at a forward P/E of 10.71, a P/B of 1.22, and a P/S of 1.03, compared to a forward P/E of 23.99, a P/B of 31.52, and a P/S of 3.09 for CLX. NWL 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
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”. NWL is currently priced at a -13.97% to its one-year price target of 37.14. Comparatively, CLX is 8.23% relative to its price target of 134.00. This suggests that NWL 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 2.20 for NWL and 2.80 for CLX, which implies that analysts are more bullish on the outlook for CLX.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. NWL has a beta of 1.14 and CLX’s beta is 0.40. CLX’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. NWL has a short ratio of 2.70 compared to a short interest of 8.01 for CLX. This implies that the market is currently less bearish on the outlook for NWL.
Newell Brands Inc. (NYSE:NWL) beats The Clorox Company (NYSE:CLX) on a total of 8 of the 14 factors compared between the two stocks. NWL higher liquidity and has lower financial risk. In terms of valuation, NWL is the cheaper of the two stocks on an earnings, book value and sales basis, NWL is more undervalued relative to its price target. Finally, NWL has better sentiment signals based on short interest.