Choosing Between Tiffany & Co. (TIF) and Agilent Technologies, Inc. (A)

Tiffany & Co. (NYSE:TIF) shares are up more than 65.88% this year and recently decreased -0.19% or -$0.25 to settle at $133.55. Agilent Technologies, Inc. (NYSE:A), on the other hand, is up 19.11% year to date as of 12/02/2019. It currently trades at $80.35 and has returned 1.55% during the past week.

Tiffany & Co. (NYSE:TIF) and Agilent Technologies, Inc. (NYSE:A) are the two most active stocks in the Jewelry Stores industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

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 TIF to grow earnings at a 8.53% annual rate over the next 5 years. Comparatively, A is expected to grow at a 9.18% annual rate. All else equal, A’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

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 25.7% for Agilent Technologies, Inc. (A). TIF’s ROI is 15.00% while A has a ROI of 13.60%. The interpretation is that TIF’s business generates a higher return on investment than A’s.

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. TIF’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, A’s free cash flow per share was +0.74. On a percent-of-sales basis, TIF’s free cash flow was -0.22% while A converted 4.66% of its revenues into cash flow. This means that, for a given level of sales, A is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. TIF has a current ratio of 4.20 compared to 2.10 for A. This means that TIF can more easily cover its most immediate liabilities over the next twelve months. TIF’s debt-to-equity ratio is 0.32 versus a D/E of 0.38 for A. A is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TIF trades at a forward P/E of 25.72, a P/B of 5.09, and a P/S of 3.65, compared to a forward P/E of 21.18, a P/B of 5.28, and a P/S of 4.83 for A. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. TIF is currently priced at a 9.97% to its one-year price target of 121.44. Comparatively, A is -6.34% relative to its price target of 85.79. This suggests that A is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. TIF has a beta of 1.65 and A’s beta is 1.43. A’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. TIF has a short ratio of 2.80 compared to a short interest of 2.87 for A. This implies that the market is currently less bearish on the outlook for TIF.

Summary

Agilent Technologies, Inc. (NYSE:A) beats Tiffany & Co. (NYSE:TIF) on a total of 8 of the 14 factors compared between the two stocks. A generates a higher return on investment, is more profitable, has higher cash flow per share and has a higher cash conversion rate. A is more undervalued relative to its price target.