Symantec Corporation (NASDAQ:SYMC) shares are up more than 20.19% this year and recently increased 1.98% or $0.44 to settle at $22.71. International Business Machines Corporation (NYSE:IBM), on the other hand, is up 31.73% year to date as of 07/22/2019. It currently trades at $149.74 and has returned 4.48% during the past week.
Symantec Corporation (NASDAQ:SYMC) and International Business Machines Corporation (NYSE:IBM) are the two most active stocks in the Security Software & Services 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.
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 SYMC to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, IBM is expected to grow at a 2.74% annual rate. All else equal, SYMC’s higher growth rate would imply a greater potential for capital appreciation.
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 22.45% for International Business Machines Corporation (IBM). SYMC’s ROI is 2.30% while IBM has a ROI of 17.20%. The interpretation is that IBM’s business generates a higher return on investment than SYMC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. SYMC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.67. Comparatively, IBM’s free cash flow per share was +3.16. On a percent-of-sales basis, SYMC’s free cash flow was 8.76% while IBM converted 3.52% of its revenues into cash flow. This means that, for a given level of sales, SYMC 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. SYMC has a current ratio of 0.80 compared to 1.40 for IBM. This means that IBM can more easily cover its most immediate liabilities over the next twelve months. SYMC’s debt-to-equity ratio is 0.78 versus a D/E of 3.03 for IBM. IBM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SYMC trades at a forward P/E of 12.40, a P/B of 2.51, and a P/S of 3.06, compared to a forward P/E of 10.60, a P/B of 8.08, and a P/S of 1.70 for IBM. SYMC is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. SYMC is currently priced at a 8.97% to its one-year price target of 20.84. Comparatively, IBM is 0.92% relative to its price target of 148.37. This suggests that IBM 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. SYMC has a beta of 1.36 and IBM’s beta is 1.29. IBM’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. SYMC has a short ratio of 1.86 compared to a short interest of 4.40 for IBM. This implies that the market is currently less bearish on the outlook for SYMC.
International Business Machines Corporation (NYSE:IBM) beats Symantec Corporation (NASDAQ:SYMC) on a total of 9 of the 14 factors compared between the two stocks. IBM is growing fastly, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, IBM is the cheaper of the two stocks on an earnings and sales basis, IBM is more undervalued relative to its price target. Finally, TREX has better sentiment signals based on short interest.