Turquoise Hill Resources Ltd. (TRQ) vs. IAC/InterActiveCorp (IAC): Which is the Better Investment?

IAC/InterActiveCorp (NASDAQ:IAC), on the other hand, is up 30.89% year to date as of 08/13/2019. It currently trades at $239.58 and has returned 2.74% during the past week.

Turquoise Hill Resources Ltd. (NYSE:TRQ) and IAC/InterActiveCorp (NASDAQ:IAC) are the two most active stocks in the Copper industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, IAC is expected to grow at a 42.06% annual rate. All else equal, IAC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

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. EBITDA margin of 23.83% for IAC/InterActiveCorp (IAC). TRQ’s ROI is 2.20% while IAC has a ROI of 13.20%. The interpretation is that IAC’s business generates a higher return on investment than TRQ’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. TRQ’s free cash flow (“FCF”) per share for the trailing twelve months was -0.13. Comparatively, IAC’s free cash flow per share was +2.24. On a percent-of-sales basis, TRQ’s free cash flow was -22.03% while IAC converted 4.4% of its revenues into cash flow. This means that, for a given level of sales, IAC 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. TRQ has a current ratio of 6.20 compared to 3.10 for IAC. This means that TRQ can more easily cover its most immediate liabilities over the next twelve months. TRQ’s debt-to-equity ratio is 0.47 versus a D/E of 0.84 for IAC. IAC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TRQ trades at a forward P/E of 9.66, a P/B of 0.11, and a P/S of 0.77, compared to a forward P/E of 35.40, a P/B of 7.23, and a P/S of 4.65 for IAC. TRQ 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. TRQ is currently priced at a -88.25% to its one-year price target of 4.00. Comparatively, IAC is -16.27% relative to its price target of 286.12. This suggests that TRQ 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. TRQ has a beta of 1.02 and IAC’s beta is 0.94. IAC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. TRQ has a short ratio of 1.41 compared to a short interest of 5.47 for IAC. This implies that the market is currently less bearish on the outlook for TRQ.

Summary

IAC/InterActiveCorp (NASDAQ:IAC) beats Turquoise Hill Resources Ltd. (NYSE:TRQ) on a total of 7 of the 14 factors compared between the two stocks. IAC higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, TRQ is the cheaper of the two stocks on an earnings, book value and sales basis,