Global

Dissecting the Numbers for NXP Semiconductors N.V. (NXPI) and Weibo Corporation (WB)

NXP Semiconductors N.V. (NASDAQ:NXPI) shares are down more than -8.86% this year and recently decreased -1.96% or -$2.13 to settle at $106.71. Weibo Corporation (NASDAQ:WB), on the other hand, is down -1.60% year to date as of 05/17/2018. It currently trades at $101.80 and has returned -9.70% during the past week.

NXP Semiconductors N.V. (NASDAQ:NXPI) and Weibo Corporation (NASDAQ:WB) are the two most active stocks in the Semiconductor – Broad Line 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NXPI to grow earnings at a 27.00% annual rate over the next 5 years. Comparatively, WB is expected to grow at a 47.88% annual rate. All else equal, WB’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. EBITDA margin of 9.63% for Weibo Corporation (WB). NXPI’s ROI is 9.00% while WB has a ROI of 16.40%. The interpretation is that WB’s business generates a higher return on investment than NXPI’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. NXPI’s free cash flow (“FCF”) per share for the trailing twelve months was +1.34. Comparatively, WB’s free cash flow per share was +0.82. On a percent-of-sales basis, NXPI’s free cash flow was 4.97% while WB converted 15.77% of its revenues into cash flow. This means that, for a given level of sales, WB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. NXPI has a current ratio of 2.10 compared to 4.00 for WB. This means that WB can more easily cover its most immediate liabilities over the next twelve months. NXPI’s debt-to-equity ratio is 0.48 versus a D/E of 0.66 for WB. WB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NXPI trades at a forward P/E of 13.69, a P/B of 2.68, and a P/S of 3.95, compared to a forward P/E of 25.14, a P/B of 17.02, and a P/S of 20.04 for WB. NXPI is the cheaper 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. NXPI is currently priced at a -11.68% to its one-year price target of 120.82. Comparatively, WB is -29.72% relative to its price target of 144.85. This suggests that WB is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. NXPI has a beta of 0.74 and WB’s beta is 2.52. NXPI’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. NXPI has a short ratio of 1.56 compared to a short interest of 2.11 for WB. This implies that the market is currently less bearish on the outlook for NXPI.

Summary

Weibo Corporation (NASDAQ:WB) beats NXP Semiconductors N.V. (NASDAQ:NXPI) on a total of 7 of the 14 factors compared between the two stocks. WB has higher cash flow per share, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. In terms of valuation, NXPI is the cheaper of the two stocks on an earnings, book value and sales basis, WB is more undervalued relative to its price target. Finally, CELG has better sentiment signals based on short interest.

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