Nokia Corporation (NYSE:NOK) shares are up more than 32.83% this year and recently decreased -0.80% or -$0.05 to settle at $6.19. Endo International plc (NASDAQ:ENDP), on the other hand, is down -20.00% year to date as of 05/17/2018. It currently trades at $6.20 and has returned 4.03% during the past week.
Nokia Corporation (NYSE:NOK) and Endo International plc (NASDAQ:ENDP) are the two most active stocks in the Communication Equipment 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 NOK to grow earnings at a 17.32% annual rate over the next 5 years. Comparatively, ENDP is expected to grow at a -13.47% annual rate. All else equal, NOK’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 Return on Investment (ROI) as measures of profitability and return. NOK’s ROI is -4.50% while ENDP has a ROI of -9.10%. The interpretation is that NOK’s business generates a higher return on investment than ENDP’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. NOK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.07. Comparatively, ENDP’s free cash flow per share was +0.10. On a percent-of-sales basis, NOK’s free cash flow was -1.51% while ENDP converted 0.65% of its revenues into cash flow. This means that, for a given level of sales, ENDP is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. NOK has a current ratio of 1.50 compared to 1.10 for ENDP. This means that NOK can more easily cover its most immediate liabilities over the next twelve months.Valuation
NOK trades at a forward P/E of 16.38, a P/B of 1.84, and a P/S of 1.27, compared to a forward P/E of 2.47, and a P/S of 0.44 for ENDP. NOK 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. NOK is currently priced at a -7.75% to its one-year price target of 6.71. Comparatively, ENDP is -28.65% relative to its price target of 8.69. This suggests that ENDP is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. NOK has a beta of 1.15 and ENDP’s beta is 0.35. ENDP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. NOK has a short ratio of 1.59 compared to a short interest of 6.31 for ENDP. This implies that the market is currently less bearish on the outlook for NOK.Summary
Endo International plc (NASDAQ:ENDP) beats Nokia Corporation (NYSE:NOK) on a total of 8 of the 14 factors compared between the two stocks. ENDP is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, ENDP is the cheaper of the two stocks on an earnings, book value and sales basis, ENDP is more undervalued relative to its price target. Finally, BAC has better sentiment signals based on short interest.