Church & Dwight Co., Inc. (NYSE:CHD) shares are up more than 11.98% this year and recently decreased -2.98% or -$2.26 to settle at $73.64. Beacon Roofing Supply, Inc. (NASDAQ:BECN), on the other hand, is up 3.78% year to date as of 09/09/2019. It currently trades at $32.92 and has returned 3.26% during the past week.
Church & Dwight Co., Inc. (NYSE:CHD) and Beacon Roofing Supply, Inc. (NASDAQ:BECN) are the two most active stocks in the Cleaning Products industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 CHD to grow earnings at a 8.16% annual rate over the next 5 years. Comparatively, BECN is expected to grow at a 15.00% annual rate. All else equal, BECN’s higher growth rate would imply a greater potential for capital appreciation.
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. , compared to an EBITDA margin of 6.12% for Beacon Roofing Supply, Inc. (BECN). CHD’s ROI is 14.00% while BECN has a ROI of 4.10%. The interpretation is that CHD’s business generates a higher return on investment than BECN’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. CHD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.57. Comparatively, BECN’s free cash flow per share was +0.34. On a percent-of-sales basis, CHD’s free cash flow was 3.4% while BECN converted 0.36% of its revenues into cash flow. This means that, for a given level of sales, CHD is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. CHD has a current ratio of 0.80 compared to 2.10 for BECN. This means that BECN can more easily cover its most immediate liabilities over the next twelve months. CHD’s debt-to-equity ratio is 0.85 versus a D/E of 1.60 for BECN. BECN is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CHD trades at a forward P/E of 27.22, a P/B of 6.97, and a P/S of 4.39, compared to a forward P/E of 11.24, a P/B of 1.23, and a P/S of 0.32 for BECN. CHD 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. CHD is currently priced at a -3.95% to its one-year price target of 76.67. Comparatively, BECN is -6.18% relative to its price target of 35.09. This suggests that BECN is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CHD has a beta of 0.13 and BECN’s beta is 1.41. CHD’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. CHD has a short ratio of 4.71 compared to a short interest of 7.88 for BECN. This implies that the market is currently less bearish on the outlook for CHD.
Church & Dwight Co., Inc. (NYSE:CHD) beats Beacon Roofing Supply, Inc. (NASDAQ:BECN) on a total of 7 of the 14 factors compared between the two stocks. CHD is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, CHD has better sentiment signals based on short interest.