The shares of Dollar General Corporation have increased by more than 3.43% this year alone. The shares recently went up by 2.34% or $2.2 and now trades at $96.20. The shares of International Paper Company (NYSE:IP), has slumped by -5.02% year to date as of 05/16/2018. The shares currently trade at $55.03 and have been able to report a change of 5.44% over the past one week.
The stock of Dollar General Corporation and International Paper Company were two of the most active stocks on Wednesday. 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: 15.63% versus 14.11%
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 DG will grow it’s earning at a 15.63% annual rate in the next 5 years. This is in contrast to IP which will have a positive growth at a 14.11% annual rate. This means that the higher growth rate of DG 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. DG has an EBITDA margin of 10.26%, this implies that the underlying business of IP is more profitable. The ROI of DG is 14.60% while that of IP is 7.30%. These figures suggest that DG ventures generate a higher ROI than that of IP.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, DG’s free cash flow per share is a positive 1.84, while that of IP is negative -0.1.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 DG is 1.40 and that of IP is 1.60. This implies that it is easier for DG to cover its immediate obligations over the next 12 months than IP. The debt ratio of DG is 0.49 compared to 1.57 for IP. IP can be able to settle its long-term debts and thus is a lower financial risk than DG.Valuation
DG currently trades at a forward P/E of 14.35, a P/B of 4.25, and a P/S of 1.10 while IP trades at a forward P/E of 9.95, a P/B of 3.14, and a P/S of 1.02. This means that looking at the earnings, book values and sales basis, IP 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. Looking at its rival pricing, IP is at a -14.52% relative to its price target of 64.38.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 DG is 1.94 while that of IP is just 2.77. This means that analysts are more bullish on the forecast for DG stock.
The stock of International Paper Company defeats that of Dollar General Corporation when the two are compared, with IP taking 5 out of the total factors that were been considered. IP 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, IP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for IP is better on when it is viewed on short interest.