Earnings

Comparing Valuation And Performance: Finisar Corporation (FNSR), Summit Materials, Inc. (SUM)

The shares of Finisar Corporation have decreased by more than -18.92% this year alone. The shares recently went down by -5.12% or -$0.89 and now trades at $16.50. The shares of Summit Materials, Inc. (NYSE:SUM), has slumped by -48.16% year to date as of 10/10/2018. The shares currently trade at $16.30 and have been able to report a change of -9.60% over the past one week.

The stock of Finisar Corporation and Summit Materials, Inc. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 16.50% versus 26.12%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that FNSR will grow it’s earning at a 16.50% annual rate in the next 5 years. This is in contrast to SUM which will have a positive growth at a 26.12% annual rate. This means that the higher growth rate of SUM implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. FNSR has an EBITDA margin of 7.33%, this implies that the underlying business of FNSR is more profitable. The ROI of FNSR is 1.00% while that of SUM is 9.20%. These figures suggest that SUM ventures generate a higher ROI than that of FNSR.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, FNSR’s free cash flow per share is a negative -3.47, while that of SUM is also a negative -3.29.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for FNSR is 3.60 and that of SUM is 2.10. This implies that it is easier for FNSR to cover its immediate obligations over the next 12 months than SUM. The debt ratio of FNSR is 0.47 compared to 1.45 for SUM. SUM can be able to settle its long-term debts and thus is a lower financial risk than FNSR.

Valuation

FNSR currently trades at a forward P/E of 10.90, a P/B of 1.19, and a P/S of 1.54 while SUM trades at a forward P/E of 11.37, a P/B of 1.44, and a P/S of 0.92. This means that looking at the earnings, book values and sales basis, FNSR is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of FNSR is currently at a -25.47% to its one-year price target of 22.14. Looking at its rival pricing, SUM is at a -44.9% relative to its price target of 29.58.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), FNSR is given a 2.50 while 1.50 placed for SUM. This means that analysts are more bullish on the outlook for FNSR stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for FNSR is 6.79 while that of SUM is just 5.83. This means that analysts are more bullish on the forecast for SUM stock.

Conclusion

The stock of Finisar Corporation defeats that of Summit Materials, Inc. when the two are compared, with FNSR taking 7 out of the total factors that were been considered. FNSR happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, FNSR is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for FNSR is better on when it is viewed on short interest.

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