Uncovering the next great stocks: The Home Depot, Inc. (HD), Rowan Companies plc (RDC)

The shares of The Home Depot, Inc. have decreased by more than -8.83% this year alone. The shares recently went down by -0.32% or -$0.56 and now trades at $172.80. The shares of Rowan Companies plc (NYSE:RDC), has slumped by -5.04% year to date as of 04/13/2018. The shares currently trade at $14.87 and have been able to report a change of 18.02% over the past one week.

The stock of The Home Depot, Inc. and Rowan Companies plc 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: 15.41% versus -4.40%

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 HD will grow it’s earning at a 15.41% annual rate in the next 5 years. This is in contrast to RDC which will have a positive growth at a -4.40% annual rate. This means that the higher growth rate of HD 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. HD has an EBITDA margin of 16.67%, this implies that the underlying business of RDC is more profitable. The ROI of HD is 35.20% while that of RDC is 2.70%. These figures suggest that HD ventures generate a higher ROI than that of RDC.

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, HD’s free cash flow per share is a positive 0.71, while that of RDC is positive 3.15.

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 HD is 1.20 and that of RDC is 6.10. This implies that it is easier for HD to cover its immediate obligations over the next 12 months than RDC. The debt ratio of HD is 18.59 compared to 0.47 for RDC. HD can be able to settle its long-term debts and thus is a lower financial risk than RDC.


HD currently trades at a forward P/E of 16.95, a P/B of 138.24, and a P/S of 1.98 while RDC trades at a P/B of 0.35, and a P/S of 1.46. This means that looking at the earnings, book values and sales basis, HD 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 HD is currently at a -18.83% to its one-year price target of 212.88. Looking at its rival pricing, RDC is at a 3.34% relative to its price target of 14.39.

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), HD is given a 1.90 while 2.70 placed for RDC. This means that analysts are more bullish on the outlook for RDC 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 HD is 1.61 while that of RDC is just 6.58. This means that analysts are more bullish on the forecast for HD stock.


The stock of The Home Depot, Inc. defeats that of Rowan Companies plc when the two are compared, with HD taking 7 out of the total factors that were been considered. HD 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, HD is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for HD is better on when it is viewed on short interest.

Previous ArticleNext Article

Related Post

Vornado Realty Trust (VNO) and Apollo Commercial R... Vornado Realty Trust (NYSE:VNO) shares are down more than -8.99% this year and recently decreased -0.59% or -$0.42 to settle at $71.15. Apollo Commerc...
Huntsman Corporation (HUN) vs. BioAmber Inc. (BIOA... Huntsman Corporation (NYSE:HUN) and BioAmber Inc. (NYSE:BIOA) are the two most active stocks in the Chemicals - Major Diversified industry based on to...
Are These Stocks A Sure Bet? – Hibbett Sport... The shares of Hibbett Sports, Inc. have increased by more than 27.45% this year alone. The shares recently went up by 6.45% or $1.58 and now trades at...
Critical Comparison: Petroleo Brasileiro S.A. R... Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR-A) shares are up more than 39.47% this year and recently increased 0.88% or $0.12 to settle at $13.71. ...
Fastenal Company (FAST) vs. HD Supply Holdings, In... Fastenal Company (NASDAQ:FAST) shares are down more than -0.02% this year and recently increased 0.38% or $0.18 to settle at $46.97. HD Supply Holding...