Weyerhaeuser Company (NYSE:WY) shares are down more than -17.47% this year and recently decreased -4.68% or -$1.43 to settle at $29.10. Tapestry, Inc. (NYSE:TPR), on the other hand, is down -1.04% year to date as of 10/10/2018. It currently trades at $43.77 and has returned -12.70% during the past week.
Weyerhaeuser Company (NYSE:WY) and Tapestry, Inc. (NYSE:TPR) are the two most active stocks in the Lumber, Wood Production 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect WY to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, TPR is expected to grow at a 9.74% annual rate. All else equal, TPR’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 11.41% for Tapestry, Inc. (TPR). WY’s ROI is 6.80% while TPR has a ROI of 13.20%. The interpretation is that TPR’s business generates a higher return on investment than WY’s.Cash Flow
Cash is king when it comes to investing. WY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.34. Comparatively, TPR’s free cash flow per share was +0.80. On a percent-of-sales basis, WY’s free cash flow was 3.58% while TPR converted 3.94% of its revenues into cash flow. This means that, for a given level of sales, TPR is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. WY has a current ratio of 2.20 compared to 2.60 for TPR. This means that TPR can more easily cover its most immediate liabilities over the next twelve months. WY’s debt-to-equity ratio is 0.69 versus a D/E of 0.49 for TPR. WY is therefore the more solvent of the two companies, and has lower financial risk.Valuation
WY trades at a forward P/E of 19.14, a P/B of 2.38, and a P/S of 2.94, compared to a forward P/E of 14.13, a P/B of 3.88, and a P/S of 2.18 for TPR. WY 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. WY is currently priced at a -22.3% to its one-year price target of 37.45. Comparatively, TPR is -24.61% relative to its price target of 58.06. This suggests that TPR is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. WY has a beta of 1.35 and TPR’s beta is 0.54. TPR’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. WY has a short ratio of 3.18 compared to a short interest of 1.96 for TPR. This implies that the market is currently less bearish on the outlook for TPR.Summary
Tapestry, Inc. (NYSE:TPR) beats Weyerhaeuser Company (NYSE:WY) on a total of 12 of the 14 factors compared between the two stocks. TPR is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, TPR is the cheaper of the two stocks on an earnings and sales basis, TPR is more undervalued relative to its price target. Finally, TPR has better sentiment signals based on short interest.