Tiffany & Co. (NYSE:TIF) shares are up more than 6.19% this year and recently decreased -10.22% or -$12.57 to settle at $110.38. Thomson Reuters Corporation (NYSE:TRI), on the other hand, is up 3.17% year to date as of 10/10/2018. It currently trades at $44.97 and has returned -4.81% during the past week.
Tiffany & Co. (NYSE:TIF) and Thomson Reuters Corporation (NYSE:TRI) are the two most active stocks in the Jewelry Stores 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 TIF to grow earnings at a 11.22% annual rate over the next 5 years. Comparatively, TRI is expected to grow at a 30.50% annual rate. All else equal, TRI’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Tiffany & Co. (TIF) has an EBITDA margin of 23.54%. This suggests that TIF underlying business is more profitable TIF’s ROI is 13.00% while TRI has a ROI of 8.50%. The interpretation is that TIF’s business generates a higher return on investment than TRI’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, TIF’s free cash flow was -3.35% while TRI converted 0% of its revenues into cash flow. This means that, for a given level of sales, TRI 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. TIF has a current ratio of 6.00 compared to 2.30 for TRI. This means that TIF can more easily cover its most immediate liabilities over the next twelve months. TIF’s debt-to-equity ratio is 0.32 versus a D/E of 0.65 for TRI. TRI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TIF trades at a forward P/E of 20.21, a P/B of 4.45, and a P/S of 3.03, compared to a forward P/E of 35.66, a P/B of 2.74, and a P/S of 3.76 for TRI. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. TIF is currently priced at a -21.76% to its one-year price target of 141.08. Comparatively, TRI is -2.43% relative to its price target of 46.09. This suggests that TIF is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. TIF has a beta of 1.81 and TRI’s beta is 0.60. TRI’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. TIF has a short ratio of 2.20 compared to a short interest of 2.12 for TRI. This implies that the market is currently less bearish on the outlook for TRI.Summary
Tiffany & Co. (NYSE:TIF) beats Thomson Reuters Corporation (NYSE:TRI) on a total of 8 of the 14 factors compared between the two stocks. TIF is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, TIF is the cheaper of the two stocks on an earnings and sales basis, TIF is more undervalued relative to its price target. Finally, OXY has better sentiment signals based on short interest.