The shares of News Corporation have increased by more than 14.27% this year alone. The shares recently went down by -5.40% or -$0.74 and now trades at $12.97. The shares of NetEase, Inc. (NASDAQ:NTES), has jumped by 8.19% year to date as of 10/08/2019. The shares currently trade at $254.64 and have been able to report a change of -3.09% over the past one week.
The stock of News Corporation and NetEase, Inc. were two of the most active stocks on Tuesday. 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.
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 NWSA will grow it’s earning at a 18.33% annual rate in the next 5 years. This is in contrast to NTES which will have a positive growth at a 2.55% annual rate. This means that the higher growth rate of NWSA implies a greater potential for capital appreciation over the years.
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. NWSA has an EBITDA margin of 27.16%, this implies that the underlying business of NWSA is more profitable. The ROI of NWSA is 2.20% while that of NTES is 9.20%. These figures suggest that NTES ventures generate a higher ROI than that of NWSA.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, NWSA’s free cash flow per share is a positive 0.52, while that of NTES is positive 5.29.
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 NWSA is 1.20 and that of NTES is 2.20. This implies that it is easier for NWSA to cover its immediate obligations over the next 12 months than NTES. The debt ratio of NWSA is 0.16 compared to 0.27 for NTES. NTES can be able to settle its long-term debts and thus is a lower financial risk than NWSA.Valuation
NWSA currently trades at a forward P/E of 26.85, a P/B of 0.83, and a P/S of 0.75 while NTES trades at a forward P/E of 16.82, a P/B of 4.60, and a P/S of 3.18. This means that looking at the earnings, book values and sales basis, NWSA 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 NWSA is currently at a -11.65% to its one-year price target of 14.68. Looking at its rival pricing, NTES is at a -16.38% relative to its price target of 304.51.
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), NWSA is given a 3.10 while 1.70 placed for NTES. This means that analysts are more bullish on the outlook for NWSA 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 NWSA is 4.63 while that of NTES is just 2.48. This means that analysts are more bullish on the forecast for NTES stock.
The stock of News Corporation defeats that of NetEase, Inc. when the two are compared, with NWSA taking 5 out of the total factors that were been considered. NWSA 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, NWSA is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for NWSA is better on when it is viewed on short interest.