The shares of Eastman Chemical Company have decreased by more than -6.11% this year alone. The shares recently went down by -2.51% or -$1.77 and now trades at $68.64. The shares of Genuine Parts Company (NYSE:GPC), has slumped by -3.61% year to date as of 10/08/2019. The shares currently trade at $92.55 and have been able to report a change of -4.80% over the past one week.
The stock of Eastman Chemical Company and Genuine Parts Company 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 EMN will grow it’s earning at a 4.91% annual rate in the next 5 years. This is in contrast to GPC which will have a positive growth at a 4.80% annual rate. This means that the higher growth rate of EMN 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. EMN has an EBITDA margin of 19.77%, this implies that the underlying business of EMN is more profitable. The ROI of EMN is 10.90% while that of GPC is 12.80%. These figures suggest that GPC ventures generate a higher ROI than that of EMN.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, EMN’s free cash flow per share is a positive 2.36, while that of GPC is positive 0.36.
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 EMN is 1.60 and that of GPC is 1.30. This implies that it is easier for EMN to cover its immediate obligations over the next 12 months than GPC. The debt ratio of EMN is 1.08 compared to 1.06 for GPC. EMN can be able to settle its long-term debts and thus is a lower financial risk than GPC.Valuation
EMN currently trades at a forward P/E of 8.03, a P/B of 1.61, and a P/S of 0.97 while GPC trades at a forward P/E of 15.44, a P/B of 3.69, and a P/S of 0.70. This means that looking at the earnings, book values and sales basis, EMN 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 EMN is currently at a -20.62% to its one-year price target of 86.47. Looking at its rival pricing, GPC is at a -7.91% relative to its price target of 100.50.
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), EMN is given a 2.10 while 2.70 placed for GPC. This means that analysts are more bullish on the outlook for GPC 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 EMN is 1.71 while that of GPC is just 4.90. This means that analysts are more bullish on the forecast for EMN stock.
The stock of Genuine Parts Company defeats that of Eastman Chemical Company when the two are compared, with GPC taking 4 out of the total factors that were been considered. GPC 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, GPC is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for GPC is better on when it is viewed on short interest.