Earnings

Choosing Between Hot Stocks: Enterprise Products Partners L.P. (EPD), Tandem Diabetes Care, Inc. (TNDM)

The shares of Enterprise Products Partners L.P. have decreased by more than -2.83% this year alone. The shares recently went down by -0.08% or -$0.02 and now trades at $25.76. The shares of Tandem Diabetes Care, Inc. (NASDAQ:TNDM), has jumped by 201.27% year to date as of 04/13/2018. The shares currently trade at $7.11 and have been able to report a change of 23.65% over the past one week.

The stock of Enterprise Products Partners L.P. and Tandem Diabetes Care, Inc. were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 5.60% versus 53.20%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that EPD will grow it’s earning at a 5.60% annual rate in the next 5 years. This is in contrast to TNDM which will have a positive growth at a 53.20% annual rate. This means that the higher growth rate of TNDM implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. EPD has an EBITDA margin of 18.84%, this implies that the underlying business of EPD is more profitable. The ROI of EPD is 8.30% while that of TNDM is -241.70%. These figures suggest that EPD ventures generate a higher ROI than that of TNDM.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, EPD’s free cash flow per share is a negative -0.15, while that of TNDM is also a negative -0.06.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for EPD is 0.70 and that of TNDM is 1.80. This implies that it is easier for EPD to cover its immediate obligations over the next 12 months than TNDM.

Valuation

EPD currently trades at a forward P/E of 15.49, a P/B of 2.47, and a P/S of 1.91 while TNDM trades at a P/S of 2.87. This means that looking at the earnings, book values and sales basis, EPD is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of EPD is currently at a -17.86% to its one-year price target of 31.36. Looking at its rival pricing, TNDM is at a 38.33% relative to its price target of 5.14.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), EPD is given a 1.50 while 2.40 placed for TNDM. This means that analysts are more bullish on the outlook for TNDM stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for EPD is 2.67 while that of TNDM is just 1.51. This means that analysts are more bullish on the forecast for TNDM stock.

Conclusion

The stock of Enterprise Products Partners L.P. defeats that of Tandem Diabetes Care, Inc. when the two are compared, with EPD taking 6 out of the total factors that were been considered. EPD happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, EPD is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for EPD is better on when it is viewed on short interest.

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