Which of 2 stocks would appeal to long-term investors? Vale S.A. (VALE), Sprouts Farmers Market, Inc. (SFM)

The shares of Vale S.A. have increased by more than 25.11% this year alone. The shares recently went up by 1.48% or $0.22 and now trades at $15.13. The shares of Sprouts Farmers Market, Inc. (NASDAQ:SFM), has slumped by -8.21% year to date as of 05/16/2018. The shares currently trade at $22.35 and have been able to report a change of 1.45% over the past one week.

The stock of Vale S.A. and Sprouts Farmers Market, Inc. 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: 8.38% versus 17.77%

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 VALE will grow it’s earning at a 8.38% annual rate in the next 5 years. This is in contrast to SFM which will have a positive growth at a 17.77% annual rate. This means that the higher growth rate of SFM 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 VALE is 13.70% while that of SFM is 14.10%. These figures suggest that SFM ventures generate a higher ROI than that of VALE.

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, VALE’s free cash flow per share is a negative -1.69, while that of SFM is positive 1.27.

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 VALE is 1.50 and that of SFM is 1.00. This implies that it is easier for VALE to cover its immediate obligations over the next 12 months than SFM. The debt ratio of VALE is 0.45 compared to 0.78 for SFM. SFM can be able to settle its long-term debts and thus is a lower financial risk than VALE.


VALE currently trades at a forward P/E of 10.37, a P/B of 1.88, and a P/S of 2.48 while SFM trades at a forward P/E of 16.18, a P/B of 4.56, and a P/S of 0.61. This means that looking at the earnings, book values and sales basis, VALE 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 VALE is currently at a 4.71% to its one-year price target of 14.45. Looking at its rival pricing, SFM is at a -23.49% relative to its price target of 29.21.

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), VALE is given a 2.30 while 2.10 placed for SFM. This means that analysts are more bullish on the outlook for VALE 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 VALE is 4.23 while that of SFM is just 7.39. This means that analysts are more bullish on the forecast for VALE stock.


The stock of Vale S.A. defeats that of Sprouts Farmers Market, Inc. when the two are compared, with VALE taking 5 out of the total factors that were been considered. VALE 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, VALE is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for VALE is better on when it is viewed on short interest.

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