VMware, Inc. (NYSE:VMW) shares are up more than 12.33% this year and recently decreased -0.25% or -$0.39 to settle at $154.04. Gold Resource Corporation (NYSE:GORO), on the other hand, is down -6.75% year to date as of 09/12/2019. It currently trades at $3.73 and has returned 3.32% during the past week.
VMware, Inc. (NYSE:VMW) and Gold Resource Corporation (NYSE:GORO) are the two most active stocks in the Technical & System Software 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 VMW to grow earnings at a 8.90% annual rate over the next 5 years.
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 13.12% for Gold Resource Corporation (GORO). VMW’s ROI is 33.20% while GORO has a ROI of 9.50%. The interpretation is that VMW’s business generates a higher return on investment than GORO’s.Cash Flow
Cash is king when it comes to investing. VMW’s free cash flow (“FCF”) per share for the trailing twelve months was +1.47. Comparatively, GORO’s free cash flow per share was -0.18. On a percent-of-sales basis, VMW’s free cash flow was 6.7% while GORO converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, VMW is able to generate more free cash flow for investors.
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. VMW has a current ratio of 1.00 compared to 1.70 for GORO. This means that GORO can more easily cover its most immediate liabilities over the next twelve months. VMW’s debt-to-equity ratio is 0.00 versus a D/E of 0.02 for GORO. GORO is therefore the more solvent of the two companies, and has lower financial risk.Valuation
VMW trades at a forward P/E of 21.14, a P/B of 112.44, and a P/S of 6.67, compared to a forward P/E of 10.22, a P/B of 1.53, and a P/S of 2.27 for GORO. VMW 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
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. VMW is currently priced at a -10.68% to its one-year price target of 172.46. Comparatively, GORO is -48.55% relative to its price target of 7.25. This suggests that GORO is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. VMW has a beta of 0.87 and GORO’s beta is 0.98. VMW’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. VMW has a short ratio of 4.26 compared to a short interest of 3.69 for GORO. This implies that the market is currently less bearish on the outlook for GORO.
Gold Resource Corporation (NYSE:GORO) beats VMware, Inc. (NYSE:VMW) on a total of 7 of the 14 factors compared between the two stocks. GORO is growing fastly. In terms of valuation, GORO is the cheaper of the two stocks on an earnings, book value and sales basis, GORO is more undervalued relative to its price target. Finally, GORO has better sentiment signals based on short interest.