Apple Inc. (NASDAQ:AAPL) shares are up more than 10.49% this year and recently decreased -0.63% or -$1.19 to settle at $186.99. The Southern Company (NYSE:SO), on the other hand, is down -9.30% year to date as of 05/17/2018. It currently trades at $43.62 and has returned -2.44% during the past week.

Apple Inc. (NASDAQ:AAPL) and The Southern Company (NYSE:SO) are the two most active stocks in the Electronic Equipment industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

**Growth**

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect AAPL to grow earnings at a 13.45% annual rate over the next 5 years. Comparatively, SO is expected to grow at a 2.70% annual rate. All else equal, AAPL’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 23.12% for The Southern Company (SO). AAPL’s ROI is 18.30% while SO has a ROI of 2.90%. The interpretation is that AAPL’s business generates a higher return on investment than SO’s.

**Cash Flow**

Earnings don’t always accurately reflect the amount of cash that a company brings in. AAPL’s free cash flow (“FCF”) per share for the trailing twelve months was +1.53. Comparatively, SO’s free cash flow per share was -0.92. On a percent-of-sales basis, AAPL’s free cash flow was 3.39% while SO converted -4.04% of its revenues into cash flow. This means that, for a given level of sales, AAPL is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. AAPL has a current ratio of 1.50 compared to 0.70 for SO. This means that AAPL can more easily cover its most immediate liabilities over the next twelve months. AAPL’s debt-to-equity ratio is 0.96 versus a D/E of 2.11 for SO. SO is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

AAPL trades at a forward P/E of 14.08, a P/B of 7.41, and a P/S of 3.81, compared to a forward P/E of 14.44, a P/B of 1.79, and a P/S of 1.82 for SO. AAPL is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AAPL is currently priced at a -3.86% to its one-year price target of 194.49. Comparatively, SO is -6.97% relative to its price target of 46.89. This suggests that SO is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. AAPL has a beta of 1.29 and SO’s beta is 0.05. SO’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AAPL has a short ratio of 1.51 compared to a short interest of 5.79 for SO. This implies that the market is currently less bearish on the outlook for AAPL.

**Summary**

Apple Inc. (NASDAQ:AAPL) beats The Southern Company (NYSE:SO) on a total of 10 of the 14 factors compared between the two stocks. AAPL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, AAPL has better sentiment signals based on short interest.