Critical Comparison: AngloGold Ashanti Limited (AU) vs. Farfetch Limited (FTCH)

AngloGold Ashanti Limited (NYSE:AU) shares are up more than 56.10% this year and recently decreased -1.85% or -$0.37 to settle at $19.59. Farfetch Limited (NYSE:FTCH), on the other hand, is down -43.65% year to date as of 09/12/2019. It currently trades at $9.98 and has returned 6.85% during the past week.

AngloGold Ashanti Limited (NYSE:AU) and Farfetch Limited (NYSE:FTCH) are the two most active stocks in the Gold industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect AU to grow earnings at a 33.00% annual rate over the next 5 years.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. AU’s ROI is 4.20% while FTCH has a ROI of -15.50%. The interpretation is that AU’s business generates a higher return on investment than FTCH’s.

Cash Flow

Cash is king when it comes to investing. AU’s free cash flow (“FCF”) per share for the trailing twelve months was +8.35. Comparatively, FTCH’s free cash flow per share was -0.15. On a percent-of-sales basis, AU’s free cash flow was 87.8% while FTCH converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, AU is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AU has a current ratio of 0.90 compared to 3.20 for FTCH. This means that FTCH can more easily cover its most immediate liabilities over the next twelve months. AU’s debt-to-equity ratio is 0.82 versus a D/E of 0.02 for FTCH. AU is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AU trades at a forward P/E of 11.08, a P/B of 2.97, and a P/S of 2.28, compared to a P/B of 2.97, and a P/S of 4.20 for FTCH. AU is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AU is currently priced at a -8.29% to its one-year price target of 21.36. Comparatively, FTCH is -54.88% relative to its price target of 22.12. This suggests that FTCH is the better investment over the next year.

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. AU has a short ratio of 2.27 compared to a short interest of 6.48 for FTCH. This implies that the market is currently less bearish on the outlook for AU.

Summary

AngloGold Ashanti Limited (NYSE:AU) beats Farfetch Limited (NYSE:FTCH) on a total of 7 of the 13 factors compared between the two stocks. AU is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, AU has better sentiment signals based on short interest.