China Mobile Limited (NYSE:CHL) shares are down more than -0.65% this year and recently increased 0.99% or $0.49 to settle at $50.21. Nucor Corporation (NYSE:NUE), on the other hand, is down -3.99% year to date as of 10/10/2018. It currently trades at $61.04 and has returned -6.65% during the past week.
China Mobile Limited (NYSE:CHL) and Nucor Corporation (NYSE:NUE) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect CHL to grow earnings at a -2.70% annual rate over the next 5 years. Comparatively, NUE is expected to grow at a 11.57% annual rate. All else equal, NUE’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. EBITDA margin of 12.77% for Nucor Corporation (NUE). CHL’s ROI is 8.80% while NUE has a ROI of 10.80%. The interpretation is that NUE’s business generates a higher return on investment than CHL’s.Cash Flow
Cash is king when it comes to investing. On a percent-of-sales basis, CHL’s free cash flow was 0% while NUE converted 2.11% of its revenues into cash flow. This means that, for a given level of sales, NUE is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CHL has a current ratio of 1.10 compared to 3.10 for NUE. This means that NUE can more easily cover its most immediate liabilities over the next twelve months. CHL’s debt-to-equity ratio is 0.00 versus a D/E of 0.46 for NUE. NUE is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CHL trades at a forward P/E of 10.34, a P/B of 1.37, and a P/S of 1.86, compared to a forward P/E of 9.32, a P/B of 2.07, and a P/S of 0.88 for NUE. CHL is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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. CHL is currently priced at a -23.28% to its one-year price target of 65.45. Comparatively, NUE is -20.99% relative to its price target of 77.26. This suggests that CHL is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CHL has a beta of 0.69 and NUE’s beta is 1.53. CHL’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. CHL has a short ratio of 2.16 compared to a short interest of 2.22 for NUE. This implies that the market is currently less bearish on the outlook for CHL.Summary
Nucor Corporation (NYSE:NUE) beats China Mobile Limited (NYSE:CHL) on a total of 9 of the 14 factors compared between the two stocks. NUE has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, NUE is the cheaper of the two stocks on an earnings and sales basis, Finally, GS has better sentiment signals based on short interest.