Symantec Corporation (NASDAQ:SYMC) shares are up more than 22.36% this year and recently increased 6.69% or $1.45 to settle at $23.12. CenturyLink, Inc. (NYSE:CTL), on the other hand, is down -24.22% year to date as of 08/13/2019. It currently trades at $11.48 and has returned -3.93% during the past week.
Symantec Corporation (NASDAQ:SYMC) and CenturyLink, Inc. (NYSE:CTL) are the two most active stocks in the Security Software & Services 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SYMC to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, CTL is expected to grow at a 8.70% annual rate. All else equal, SYMC’s higher growth rate would imply a greater potential for capital appreciation.
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. Symantec Corporation (SYMC) has an EBITDA margin of 23.04%. This suggests that SYMC underlying business is more profitable SYMC’s ROI is 2.30% while CTL has a ROI of 0.90%. The interpretation is that SYMC’s business generates a higher return on investment than CTL’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. SYMC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.35. Comparatively, CTL’s free cash flow per share was +0.59. On a percent-of-sales basis, SYMC’s free cash flow was 4.57% while CTL converted 2.74% of its revenues into cash flow. This means that, for a given level of sales, SYMC is able to generate more free cash flow for investors.
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. SYMC has a current ratio of 0.80 compared to 0.70 for CTL. This means that SYMC can more easily cover its most immediate liabilities over the next twelve months. SYMC’s debt-to-equity ratio is 0.78 versus a D/E of 2.62 for CTL. CTL is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SYMC trades at a forward P/E of 12.44, a P/B of 2.56, and a P/S of 3.01, compared to a forward P/E of 8.47, a P/B of 0.91, and a P/S of 0.54 for CTL. SYMC 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
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. SYMC is currently priced at a 9.73% to its one-year price target of 21.07. Comparatively, CTL is -8.74% relative to its price target of 12.58. This suggests that CTL is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. SYMC has a beta of 1.33 and CTL’s beta is 0.87. CTL’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. SYMC has a short ratio of 0.85 compared to a short interest of 7.84 for CTL. This implies that the market is currently less bearish on the outlook for SYMC.
CenturyLink, Inc. (NYSE:CTL) beats Symantec Corporation (NASDAQ:SYMC) on a total of 7 of the 14 factors compared between the two stocks. CTL is growing fastly. In terms of valuation, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, CTL is more undervalued relative to its price target.