Earnings

Uncovering the next great stocks: Medtronic plc (MDT), AMC Entertainment Holdings, Inc. (AMC)

The shares of Medtronic plc have decreased by more than -1.46% this year alone. The shares recently went down by -0.34% or -$0.27 and now trades at $79.57. The shares of AMC Entertainment Holdings, Inc. (NYSE:AMC), has jumped by 12.25% year to date as of 04/13/2018. The shares currently trade at $16.95 and have been able to report a change of 3.04% over the past one week.

The stock of Medtronic plc and AMC Entertainment Holdings, 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: 6.86% versus 6.20%

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 MDT will grow it’s earning at a 6.86% annual rate in the next 5 years. This is in contrast to AMC which will have a positive growth at a 6.20% annual rate. This means that the higher growth rate of MDT 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. MDT has an EBITDA margin of 29.64%, this implies that the underlying business of MDT is more profitable. The ROI of MDT is 5.70% while that of AMC is -2.40%. These figures suggest that MDT ventures generate a higher ROI than that of AMC.

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, MDT’s free cash flow per share is a positive 3.79, while that of AMC is positive 2.82.

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 MDT is 2.40 and that of AMC is 0.60. This implies that it is easier for MDT to cover its immediate obligations over the next 12 months than AMC. The debt ratio of MDT is 0.57 compared to 2.31 for AMC. AMC can be able to settle its long-term debts and thus is a lower financial risk than MDT.

Valuation

MDT currently trades at a forward P/E of 15.46, a P/B of 2.14, and a P/S of 3.64 while AMC trades at a forward P/E of 25.68, a P/B of 1.04, and a P/S of 0.41. This means that looking at the earnings, book values and sales basis, MDT 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 MDT is currently at a -12.56% to its one-year price target of 91.00. Looking at its rival pricing, AMC is at a -15.46% relative to its price target of 20.05.

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), MDT is given a 2.20 while 2.40 placed for AMC. This means that analysts are more bullish on the outlook for AMC 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 MDT is 2.17 while that of AMC is just 9.68. This means that analysts are more bullish on the forecast for MDT stock.

Conclusion

The stock of AMC Entertainment Holdings, Inc. defeats that of Medtronic plc when the two are compared, with AMC taking 5 out of the total factors that were been considered. AMC 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, AMC is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AMC is better on when it is viewed on short interest.

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