The shares of American Eagle Outfitters, Inc. have decreased by more than -22.40% this year alone. The shares recently went up by 1.21% or $0.18 and now trades at $15.00. The shares of Cinemark Holdings, Inc. (NYSE:CNK), has slumped by -5.14% year to date as of 11/27/2019. The shares currently trade at $33.96 and have been able to report a change of 0.24% over the past one week.
The stock of American Eagle Outfitters, Inc. and Cinemark Holdings, 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.
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 AEO will grow it’s earning at a 3.82% annual rate in the next 5 years. This is in contrast to CNK which will have a positive growth at a 14.13% annual rate. This means that the higher growth rate of CNK 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. AEO has an EBITDA margin of 11.98%, this implies that the underlying business of CNK is more profitable. The ROI of AEO is 19.70% while that of CNK is 8.90%. These figures suggest that AEO ventures generate a higher ROI than that of CNK.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, AEO’s free cash flow per share is a positive 0.75, while that of CNK is negative -0.55.
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 AEO is 1.30 and that of CNK is 0.90. This implies that it is easier for AEO to cover its immediate obligations over the next 12 months than CNK. The debt ratio of AEO is 0.00 compared to 1.30 for CNK. CNK can be able to settle its long-term debts and thus is a lower financial risk than AEO.Valuation
AEO currently trades at a forward P/E of 9.40, a P/B of 2.09, and a P/S of 0.61 while CNK trades at a forward P/E of 14.69, a P/B of 2.66, and a P/S of 1.23. This means that looking at the earnings, book values and sales basis, AEO 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 AEO is currently at a -21.05% to its one-year price target of 19.00. Looking at its rival pricing, CNK is at a -22% relative to its price target of 43.54.
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), AEO is given a 2.50 while 2.20 placed for CNK. This means that analysts are more bullish on the outlook for AEO 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 AEO is 3.49 while that of CNK is just 16.15. This means that analysts are more bullish on the forecast for AEO stock.
The stock of Cinemark Holdings, Inc. defeats that of American Eagle Outfitters, Inc. when the two are compared, with CNK taking 5 out of the total factors that were been considered. CNK 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, CNK is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CNK is better on when it is viewed on short interest.