Dissecting the Numbers for Weyerhaeuser Company (WY) and Diebold Nixdorf, Incorporated (DBD)

Weyerhaeuser Company (NYSE:WY) shares are up more than 33.62% this year and recently decreased -1.02% or -$0.3 to settle at $29.21. Diebold Nixdorf, Incorporated (NYSE:DBD), on the other hand, is up 184.34% year to date as of 12/02/2019. It currently trades at $7.08 and has returned -4.19% during the past week.

Weyerhaeuser Company (NYSE:WY) and Diebold Nixdorf, Incorporated (NYSE:DBD) are the two most active stocks in the Lumber, Wood Production industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect WY to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, DBD is expected to grow at a 3.00% annual rate. All else equal, WY’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 3.54% for Diebold Nixdorf, Incorporated (DBD). WY’s ROI is 7.20% while DBD has a ROI of -18.00%. The interpretation is that WY’s business generates a higher return on investment than DBD’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. WY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, DBD’s free cash flow per share was +0.85. On a percent-of-sales basis, WY’s free cash flow was -0.8% while DBD converted 1.43% of its revenues into cash flow. This means that, for a given level of sales, DBD 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. WY has a current ratio of 1.60 compared to 1.20 for DBD. This means that WY can more easily cover its most immediate liabilities over the next twelve months.

Valuation

WY trades at a forward P/E of 37.98, a P/B of 2.53, and a P/S of 3.30, compared to a forward P/E of 8.06, and a P/S of 0.12 for DBD. WY is the expensive 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. WY is currently priced at a -8.58% to its one-year price target of 31.95. Comparatively, DBD is -45.54% relative to its price target of 13.00. This suggests that DBD 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. WY has a beta of 1.62 and DBD’s beta is 2.73. WY’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. WY has a short ratio of 4.01 compared to a short interest of 11.47 for DBD. This implies that the market is currently less bearish on the outlook for WY.

Summary

Diebold Nixdorf, Incorporated (NYSE:DBD) beats Weyerhaeuser Company (NYSE:WY) on a total of 7 of the 14 factors compared between the two stocks. DBD is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, DBD is the cheaper of the two stocks on an earnings, book value and sales basis, DBD is more undervalued relative to its price target.