C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) shares are down more than -7.54% this year and recently increased 1.17% or $0.9 to settle at $77.75. Tractor Supply Company (NASDAQ:TSCO), on the other hand, is up 14.79% year to date as of 12/02/2019. It currently trades at $95.78 and has returned -1.47% during the past week.
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) and Tractor Supply Company (NASDAQ:TSCO) are the two most active stocks in the Air Delivery & Freight Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CHRW to grow earnings at a 5.52% annual rate over the next 5 years. Comparatively, TSCO is expected to grow at a 11.50% annual rate. All else equal, TSCO’s higher growth rate would imply a greater potential for capital appreciation.
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 11.14% for Tractor Supply Company (TSCO). CHRW’s ROI is 23.10% while TSCO has a ROI of 27.50%. The interpretation is that TSCO’s business generates a higher return on investment than CHRW’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CHRW’s free cash flow (“FCF”) per share for the trailing twelve months was +0.64. Comparatively, TSCO’s free cash flow per share was -0.31. On a percent-of-sales basis, CHRW’s free cash flow was 0.52% while TSCO converted -0.46% of its revenues into cash flow. This means that, for a given level of sales, CHRW is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. CHRW has a current ratio of 1.90 compared to 1.60 for TSCO. This means that CHRW can more easily cover its most immediate liabilities over the next twelve months. CHRW’s debt-to-equity ratio is 0.78 versus a D/E of 0.45 for TSCO. CHRW is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CHRW trades at a forward P/E of 17.74, a P/B of 6.34, and a P/S of 0.68, compared to a forward P/E of 18.25, a P/B of 7.64, and a P/S of 1.38 for TSCO. CHRW is the cheaper 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CHRW is currently priced at a -4.15% to its one-year price target of 81.12. Comparatively, TSCO is -12.67% relative to its price target of 109.67. This suggests that TSCO is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CHRW has a beta of 0.61 and TSCO’s beta is 1.01. CHRW’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CHRW has a short ratio of 11.06 compared to a short interest of 2.12 for TSCO. This implies that the market is currently less bearish on the outlook for TSCO.
Tractor Supply Company (NASDAQ:TSCO) beats C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) on a total of 7 of the 14 factors compared between the two stocks. TSCO has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, CHRW is the cheaper of the two stocks on an earnings, book value and sales basis, TSCO is more undervalued relative to its price target. Finally, TSCO has better sentiment signals based on short interest.