Analytical Comparison: Caterpillar Inc. (CAT) vs. At Quad/Graphics, Inc. (QUAD)

The shares of Caterpillar Inc. have decreased by more than -6.27% this year alone. The shares recently went up by 1.77% or $2.07 and now trades at $119.10. The shares of Quad/Graphics, Inc. (NYSE:QUAD), has slumped by -26.62% year to date as of 09/04/2019. The shares currently trade at $9.04 and have been able to report a change of 4.63% over the past one week.

The stock of Caterpillar Inc. and Quad/Graphics, Inc. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 5.09% versus 5.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that CAT will grow it’s earning at a 5.09% annual rate in the next 5 years. This is in contrast to QUAD which will have a positive growth at a 5.00% annual rate. This means that the higher growth rate of CAT implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. CAT has an EBITDA margin of 19.07%, this implies that the underlying business of CAT is more profitable. The ROI of CAT is 12.80% while that of QUAD is 4.80%. These figures suggest that CAT ventures generate a higher ROI than that of QUAD.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CAT’s free cash flow per share is a positive 2.54, while that of QUAD is positive 0.77.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CAT is 1.40 and that of QUAD is 1.10. This implies that it is easier for CAT to cover its immediate obligations over the next 12 months than QUAD. The debt ratio of CAT is 2.45 compared to 2.99 for QUAD. QUAD can be able to settle its long-term debts and thus is a lower financial risk than CAT.

Valuation

CAT currently trades at a forward P/E of 9.69, a P/B of 4.56, and a P/S of 1.21 while QUAD trades at a forward P/E of 7.73, a P/B of 1.22, and a P/S of 0.11. This means that looking at the earnings, book values and sales basis, QUAD is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of CAT is currently at a -17.07% to its one-year price target of 143.61. Looking at its rival pricing, QUAD is at a -53.64% relative to its price target of 19.50.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), CAT is given a 2.40 while 1.00 placed for QUAD. This means that analysts are more bullish on the outlook for CAT stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for CAT is 1.93 while that of QUAD is just 7.04. This means that analysts are more bullish on the forecast for CAT stock.

Conclusion

The stock of Quad/Graphics, Inc. defeats that of Caterpillar Inc. when the two are compared, with QUAD taking 5 out of the total factors that were been considered. QUAD happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, QUAD is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for QUAD is better on when it is viewed on short interest.