SunPower Corporation (NASDAQ:SPWR) shares are up more than 144.87% this year and recently decreased -4.40% or -$0.56 to settle at $12.17. Tiffany & Co. (NYSE:TIF), on the other hand, is up 20.00% year to date as of 09/12/2019. It currently trades at $96.61 and has returned 9.55% during the past week.
SunPower Corporation (NASDAQ:SPWR) and Tiffany & Co. (NYSE:TIF) are the two most active stocks in the Semiconductor – Specialized 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SPWR to grow earnings at a -0.40% annual rate over the next 5 years. Comparatively, TIF is expected to grow at a 8.53% annual rate. All else equal, TIF’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. EBITDA margin of 17.83% for Tiffany & Co. (TIF). SPWR’s ROI is -66.70% while TIF has a ROI of 15.00%. The interpretation is that TIF’s business generates a higher return on investment than SPWR’s.
The value of a stock is simply the present value of its future free cash flows. SPWR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.60. Comparatively, TIF’s free cash flow per share was -0.08. On a percent-of-sales basis, SPWR’s free cash flow was -4.95% while TIF converted -0.22% of its revenues into cash flow. This means that, for a given level of sales, TIF is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. SPWR has a current ratio of 1.30 compared to 4.20 for TIF. This means that TIF can more easily cover its most immediate liabilities over the next twelve months.
SPWR trades at a forward P/E of 64.05, and a P/S of 1.09, compared to a forward P/E of 18.65, a P/B of 3.68, and a P/S of 2.66 for TIF. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. SPWR is currently priced at a 7.41% to its one-year price target of 11.33. Comparatively, TIF is -7.3% relative to its price target of 104.22. This suggests that TIF 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. SPWR has a beta of 2.28 and TIF’s beta is 1.60. TIF’s shares are therefore the less volatile of the two stocks.
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. SPWR has a short ratio of 6.19 compared to a short interest of 7.45 for TIF. This implies that the market is currently less bearish on the outlook for SPWR.
Tiffany & Co. (NYSE:TIF) beats SunPower Corporation (NASDAQ:SPWR) on a total of 10 of the 14 factors compared between the two stocks. TIF has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. TIF is more undervalued relative to its price target.