Gildan Activewear Inc. (NYSE:GIL) shares are down more than -4.64% this year and recently decreased -0.55% or -$0.16 to settle at $28.95. Teekay Tankers Ltd. (NYSE:TNK), on the other hand, is up 149.87% year to date as of 12/02/2019. It currently trades at $18.55 and has returned -6.88% during the past week.
Gildan Activewear Inc. (NYSE:GIL) and Teekay Tankers Ltd. (NYSE:TNK) are the two most active stocks in the Textile – Apparel Clothing 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect GIL to grow earnings at a 8.30% annual rate over the next 5 years. Comparatively, TNK is expected to grow at a 3.00% annual rate. All else equal, GIL’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. EBITDA margin of 2.64% for Teekay Tankers Ltd. (TNK). GIL’s ROI is 14.70% while TNK has a ROI of 0.40%. The interpretation is that GIL’s business generates a higher return on investment than TNK’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GIL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.39. Comparatively, TNK’s free cash flow per share was -0.01. On a percent-of-sales basis, GIL’s free cash flow was 2.73% while TNK converted -0% of its revenues into cash flow. This means that, for a given level of sales, GIL is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. GIL has a current ratio of 4.20 compared to 0.90 for TNK. This means that GIL can more easily cover its most immediate liabilities over the next twelve months. GIL’s debt-to-equity ratio is 0.50 versus a D/E of 1.17 for TNK. TNK is therefore the more solvent of the two companies, and has lower financial risk.Valuation
GIL trades at a forward P/E of 14.83, a P/B of 3.00, and a P/S of 2.03, compared to a forward P/E of 3.17, a P/B of 0.67, and a P/S of 0.75 for TNK. GIL 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
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. GIL is currently priced at a -6.91% to its one-year price target of 31.10. Comparatively, TNK is -20.42% relative to its price target of 23.31. This suggests that TNK is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. GIL has a beta of 0.83 and TNK’s beta is 1.22. GIL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. GIL has a short ratio of 1.94 compared to a short interest of 0.92 for TNK. This implies that the market is currently less bearish on the outlook for TNK.
Teekay Tankers Ltd. (NYSE:TNK) beats Gildan Activewear Inc. (NYSE:GIL) on a total of 7 of the 14 factors compared between the two stocks. TNK is growing fastly. In terms of valuation, TNK is the cheaper of the two stocks on an earnings, book value and sales basis, TNK is more undervalued relative to its price target. Finally, TNK has better sentiment signals based on short interest.