Vipshop Holdings Limited (VIPS) and American Axle & Manufacturing Holdings, Inc. (AXL) Go Head-to-head

Vipshop Holdings Limited (NYSE:VIPS) shares are up more than 68.50% this year and recently increased 2.79% or $0.25 to settle at $9.20. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), on the other hand, is down -24.41% year to date as of 09/10/2019. It currently trades at $8.39 and has returned 39.60% during the past week.

Vipshop Holdings Limited (NYSE:VIPS) and American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) are the two most active stocks in the Catalog & Mail Order Houses 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.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VIPS to grow earnings at a 2.85% annual rate over the next 5 years. Comparatively, AXL is expected to grow at a -2.74% annual rate. All else equal, VIPS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 7.05% for American Axle & Manufacturing Holdings, Inc. (AXL). VIPS’s ROI is 7.70% while AXL has a ROI of 3.00%. The interpretation is that VIPS’s business generates a higher return on investment than AXL’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, VIPS’s free cash flow was 0% while AXL converted 1.42% of its revenues into cash flow. This means that, for a given level of sales, AXL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. VIPS has a current ratio of 1.10 compared to 1.60 for AXL. This means that AXL can more easily cover its most immediate liabilities over the next twelve months. VIPS’s debt-to-equity ratio is 0.06 versus a D/E of 2.36 for AXL. AXL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VIPS trades at a forward P/E of 9.89, a P/B of 2.27, and a P/S of 0.50, compared to a forward P/E of 3.65, a P/B of 0.60, and a P/S of 0.14 for AXL. VIPS 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. VIPS is currently priced at a 0.99% to its one-year price target of 9.11. Comparatively, AXL is -32.88% relative to its price target of 12.50. This suggests that AXL is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. VIPS has a beta of 1.95 and AXL’s beta is 2.19. VIPS’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. VIPS has a short ratio of 1.50 compared to a short interest of 6.20 for AXL. This implies that the market is currently less bearish on the outlook for VIPS.

Summary

American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) beats Vipshop Holdings Limited (NYSE:VIPS) on a total of 9 of the 14 factors compared between the two stocks. AXL is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, AXL is the cheaper of the two stocks on an earnings, book value and sales basis, AXL is more undervalued relative to its price target.