Finance

Dissecting the Numbers for Tilray, Inc. (TLRY) and Enterprise Products Partners L.P. (EPD)

Tilray, Inc. (NASDAQ:TLRY) shares are up more than 510.99% this year and recently increased 6.08% or $7.84 to settle at $136.80. Enterprise Products Partners L.P. (NYSE:EPD), on the other hand, is up 9.54% year to date as of 10/10/2018. It currently trades at $28.58 and has returned -2.16% during the past week.

Tilray, Inc. (NASDAQ:TLRY) and Enterprise Products Partners L.P. (NYSE:EPD) are the two most active stocks in the Drug Manufacturers – Other 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

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, EPD is expected to grow at a 5.30% annual rate. All else equal, EPD’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 17.51% for Enterprise Products Partners L.P. (EPD). TLRY’s ROI is -16.20% while EPD has a ROI of 8.30%. The interpretation is that EPD’s business generates a higher return on investment than TLRY’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. TLRY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.17. Comparatively, EPD’s free cash flow per share was -0.20. On a percent-of-sales basis, TLRY’s free cash flow was -0.08% while EPD converted -1.48% of its revenues into cash flow. This means that, for a given level of sales, TLRY 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. TLRY has a current ratio of 0.60 compared to 0.70 for EPD. This means that EPD can more easily cover its most immediate liabilities over the next twelve months. TLRY’s debt-to-equity ratio is 1.55 versus a D/E of 1.13 for EPD. TLRY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TLRY trades at a P/B of 291.06, and a P/S of 449.30, compared to a forward P/E of 15.97, a P/B of 2.74, and a P/S of 1.87 for EPD. TLRY is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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

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. TLRY is currently priced at a 191.06% to its one-year price target of 47.00. Comparatively, EPD is -15.07% relative to its price target of 33.65. This suggests that EPD is the better investment over the next year.

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. TLRY has a short ratio of 0.41 compared to a short interest of 2.20 for EPD. This implies that the market is currently less bearish on the outlook for TLRY.

Summary




Enterprise Products Partners L.P. (NYSE:EPD) beats Tilray, Inc. (NASDAQ:TLRY) on a total of 9 of the 14 factors compared between the two stocks. EPD has higher cash flow per share, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, EPD is the cheaper of the two stocks on book value and sales basis, EPD is more undervalued relative to its price target. Finally, CFG has better sentiment signals based on short interest.

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