United States Steel Corporation (NYSE:X) shares are down more than -33.61% this year and recently increased 3.68% or $0.43 to settle at $12.11. GoDaddy Inc. (NYSE:GDDY), on the other hand, is down -2.39% year to date as of 08/13/2019. It currently trades at $64.05 and has returned -1.46% during the past week.
United States Steel Corporation (NYSE:X) and GoDaddy Inc. (NYSE:GDDY) are the two most active stocks in the Steel & Iron 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 isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 13.24% for GoDaddy Inc. (GDDY). X’s ROI is 20.20% while GDDY has a ROI of 5.00%. The interpretation is that X’s business generates a higher return on investment than GDDY’s.
The value of a stock is simply the present value of its future free cash flows. X’s free cash flow (“FCF”) per share for the trailing twelve months was +0.01. Comparatively, GDDY’s free cash flow per share was +0.82. On a percent-of-sales basis, X’s free cash flow was 0.01% while GDDY converted 5.5% of its revenues into cash flow. This means that, for a given level of sales, GDDY is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. X has a current ratio of 1.40 compared to 0.90 for GDDY. This means that X can more easily cover its most immediate liabilities over the next twelve months. X’s debt-to-equity ratio is 0.56 versus a D/E of 2.55 for GDDY. GDDY is therefore the more solvent of the two companies, and has lower financial risk.
X trades at a forward P/E of 17.03, a P/B of 0.48, and a P/S of 0.15, compared to a forward P/E of 58.98, a P/B of 11.93, and a P/S of 4.20 for GDDY. X is the cheaper 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 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. X is currently priced at a -9.08% to its one-year price target of 13.32. Comparatively, GDDY is -27.57% relative to its price target of 88.43. This suggests that GDDY 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. X has a beta of 2.98 and GDDY’s beta is 0.66. GDDY’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. X has a short ratio of 2.73 compared to a short interest of 3.87 for GDDY. This implies that the market is currently less bearish on the outlook for X.
United States Steel Corporation (NYSE:X) beats GoDaddy Inc. (NYSE:GDDY) on a total of 7 of the 14 factors compared between the two stocks. X generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, X is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, X has better sentiment signals based on short interest.