Comparing Delta Air Lines, Inc. (DAL) and Aimmune Therapeutics, Inc. (AIMT)

Delta Air Lines, Inc. (NYSE:DAL) shares are up more than 19.12% this year and recently increased 1.12% or $0.66 to settle at $59.44. Aimmune Therapeutics, Inc. (NASDAQ:AIMT), on the other hand, is up 3.14% year to date as of 09/12/2019. It currently trades at $24.67 and has returned 17.14% during the past week.

Delta Air Lines, Inc. (NYSE:DAL) and Aimmune Therapeutics, Inc. (NASDAQ:AIMT) are the two most active stocks in the Major Airlines 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.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect DAL to grow earnings at a 14.27% annual rate over the next 5 years. Comparatively, AIMT is expected to grow at a 34.60% annual rate. All else equal, AIMT’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Delta Air Lines, Inc. (DAL) has an EBITDA margin of 17.43%. This suggests that DAL underlying business is more profitable

Cash Flow

Cash is king when it comes to investing. DAL’s free cash flow (“FCF”) per share for the trailing twelve months was +2.28. Comparatively, AIMT’s free cash flow per share was -0.80.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. DAL has a current ratio of 0.30 compared to 5.80 for AIMT. This means that AIMT can more easily cover its most immediate liabilities over the next twelve months. DAL’s debt-to-equity ratio is 0.72 versus a D/E of 0.19 for AIMT. DAL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

DAL trades at a forward P/E of 7.95, a P/B of 2.77, and a P/S of 0.85, compared to a P/B of 7.50, for AIMT. DAL 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

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. DAL is currently priced at a -15.01% to its one-year price target of 69.94. Comparatively, AIMT is -46.49% relative to its price target of 46.10. This suggests that AIMT 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. DAL has a beta of 1.16 and AIMT’s beta is -0.11. AIMT’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. DAL has a short ratio of 3.68 compared to a short interest of 17.40 for AIMT. This implies that the market is currently less bearish on the outlook for DAL.

Summary

Aimmune Therapeutics, Inc. (NASDAQ:AIMT) beats Delta Air Lines, Inc. (NYSE:DAL) on a total of 7 of the 13 factors compared between the two stocks. AIMT is more profitable, higher liquidity and has lower financial risk. In terms of valuation, AIMT is the cheaper of the two stocks on an earnings and sales basis, AIMT is more undervalued relative to its price target.