Analog Devices, Inc. (NASDAQ:ADI) shares are down more than -5.76% this year and recently decreased -3.30% or -$2.86 to settle at $83.90. PPL Corporation (NYSE:PPL), on the other hand, is down -1.62% year to date as of 10/10/2018. It currently trades at $30.45 and has returned 3.01% during the past week.
Analog Devices, Inc. (NASDAQ:ADI) and PPL Corporation (NYSE:PPL) are the two most active stocks in the Semiconductor – Integrated Circuits industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ADI to grow earnings at a 11.00% annual rate over the next 5 years. Comparatively, PPL is expected to grow at a 4.27% annual rate. All else equal, ADI’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 56.07% for PPL Corporation (PPL). ADI’s ROI is 5.30% while PPL has a ROI of 8.10%. The interpretation is that PPL’s business generates a higher return on investment than ADI’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ADI’s free cash flow (“FCF”) per share for the trailing twelve months was +1.04. Comparatively, PPL’s free cash flow per share was -0.43. On a percent-of-sales basis, ADI’s free cash flow was 7.57% while PPL converted -4.04% of its revenues into cash flow. This means that, for a given level of sales, ADI 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. ADI has a current ratio of 1.60 compared to 0.60 for PPL. This means that ADI can more easily cover its most immediate liabilities over the next twelve months. ADI’s debt-to-equity ratio is 0.60 versus a D/E of 1.98 for PPL. PPL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ADI trades at a forward P/E of 14.19, a P/B of 2.87, and a P/S of 5.24, compared to a forward P/E of 12.52, a P/B of 1.89, and a P/S of 2.72 for PPL. ADI 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. ADI is currently priced at a -22.28% to its one-year price target of 107.95. Comparatively, PPL is -2.62% relative to its price target of 31.27. This suggests that ADI 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. ADI has a beta of 1.20 and PPL’s beta is 0.56. PPL’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. ADI has a short ratio of 3.01 compared to a short interest of 10.63 for PPL. This implies that the market is currently less bearish on the outlook for ADI.Summary
Analog Devices, Inc. (NASDAQ:ADI) beats PPL Corporation (NYSE:PPL) on a total of 8 of the 14 factors compared between the two stocks. ADI is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. ADI is more undervalued relative to its price target. Finally, ADI has better sentiment signals based on short interest.