Cypress Semiconductor Corporation (NASDAQ:CY) shares are up more than 6.89% this year and recently decreased -1.39% or -$0.23 to settle at $16.29. Time Warner Inc. (NYSE:TWX), on the other hand, is up 1.54% year to date as of 05/17/2018. It currently trades at $92.88 and has returned 0.37% during the past week.
Cypress Semiconductor Corporation (NASDAQ:CY) and Time Warner Inc. (NYSE:TWX) are the two most active stocks in the Semiconductor – Broad Line industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.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 CY to grow earnings at a 22.30% annual rate over the next 5 years. Comparatively, TWX is expected to grow at a 10.23% annual rate. All else equal, CY’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 19.86% for Time Warner Inc. (TWX). CY’s ROI is 1.10% while TWX has a ROI of 12.20%. The interpretation is that TWX’s business generates a higher return on investment than CY’s.Cash Flow
Cash is king when it comes to investing. CY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.07. Comparatively, TWX’s free cash flow per share was +1.08. On a percent-of-sales basis, CY’s free cash flow was -1.08% while TWX converted 2.7% of its revenues into cash flow. This means that, for a given level of sales, TWX 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. CY has a current ratio of 1.30 compared to 1.20 for TWX. This means that CY can more easily cover its most immediate liabilities over the next twelve months. CY’s debt-to-equity ratio is 0.52 versus a D/E of 0.75 for TWX. TWX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CY trades at a forward P/E of 11.39, a P/B of 3.17, and a P/S of 2.44, compared to a forward P/E of 11.34, a P/B of 2.43, and a P/S of 2.30 for TWX. CY is the expensive of the two stocks on an earnings, book value and sales basis. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CY is currently priced at a -19.16% to its one-year price target of 20.15. Comparatively, TWX is -11.06% relative to its price target of 104.43. This suggests that CY 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. CY has a beta of 2.11 and TWX’s beta is 0.86. TWX’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CY has a short ratio of 3.45 compared to a short interest of 2.09 for TWX. This implies that the market is currently less bearish on the outlook for TWX.Summary
Time Warner Inc. (NYSE:TWX) beats Cypress Semiconductor Corporation (NASDAQ:CY) on a total of 9 of the 14 factors compared between the two stocks. TWX is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, TWX is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TWX has better sentiment signals based on short interest.