Earnings

Which is more compelling pick right now? – Ascena Retail Group, Inc. (ASNA), Legacy Reserves LP (LGCY)

The shares of Ascena Retail Group, Inc. have increased by more than 35.74% this year alone. The shares recently went up by 11.93% or $0.34 and now trades at $3.19. The shares of Legacy Reserves LP (NASDAQ:LGCY), has jumped by 499.38% year to date as of 05/16/2018. The shares currently trade at $9.65 and have been able to report a change of 34.03% over the past one week.

The stock of Ascena Retail Group, Inc. and Legacy Reserves LP 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: 21.00% versus 17.50%

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 ASNA will grow it’s earning at a 21.00% annual rate in the next 5 years. This is in contrast to LGCY which will have a positive growth at a 17.50% annual rate. This means that the higher growth rate of ASNA 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. The ROI of ASNA is -41.00% while that of LGCY is 2.00%. These figures suggest that LGCY ventures generate a higher ROI than that of ASNA.

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, ASNA’s free cash flow per share is a positive 1.5.

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 ASNA is 1.30 and that of LGCY is 0.80. This implies that it is easier for ASNA to cover its immediate obligations over the next 12 months than LGCY.

Valuation

ASNA currently trades at a forward P/E of 227.86, a P/B of 0.78, and a P/S of 0.09 while LGCY trades at a forward P/E of 7.66, and a P/S of 1.41. This means that looking at the earnings, book values and sales basis, ASNA 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 ASNA is currently at a 41.78% to its one-year price target of 2.25. Looking at its rival pricing, LGCY is at a 543.33% relative to its price target of 1.50.

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), ASNA is given a 3.30 while 4.00 placed for LGCY. This means that analysts are more bullish on the outlook for LGCY 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 ASNA is 24.41 while that of LGCY is just 1.59. This means that analysts are more bullish on the forecast for LGCY stock.

Conclusion

The stock of Legacy Reserves LP defeats that of Ascena Retail Group, Inc. when the two are compared, with LGCY taking 5 out of the total factors that were been considered. LGCY 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, LGCY is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for LGCY is better on when it is viewed on short interest.

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