Deere & Company (DE) vs. Weibo Corporation (WB): Comparing the Farm & Construction Machinery Industry’s Most Active Stocks

Deere & Company (NYSE:DE) shares are up more than 9.45% this year and recently decreased -1.14% or -$1.89 to settle at $163.26. Weibo Corporation (NASDAQ:WB), on the other hand, is down -16.19% year to date as of 09/12/2019. It currently trades at $48.97 and has returned 5.88% during the past week.

Deere & Company (NYSE:DE) and Weibo Corporation (NASDAQ:WB) are the two most active stocks in the Farm & Construction Machinery 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.

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 DE to grow earnings at a 16.26% annual rate over the next 5 years. Comparatively, WB is expected to grow at a 10.55% annual rate. All else equal, DE’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 40.32% for Weibo Corporation (WB). DE’s ROI is 7.60% while WB has a ROI of 18.60%. The interpretation is that WB’s business generates a higher return on investment than DE’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. DE’s free cash flow (“FCF”) per share for the trailing twelve months was +2.67. Comparatively, WB’s free cash flow per share was -. On a percent-of-sales basis, DE’s free cash flow was 2.25% while WB converted 0% of its revenues into cash flow. This means that, for a given level of sales, DE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

DE’s debt-to-equity ratio is 3.70 versus a D/E of 0.44 for WB. DE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

DE trades at a forward P/E of 14.59, a P/B of 4.20, and a P/S of 1.32, compared to a forward P/E of 15.71, a P/B of 5.45, and a P/S of 6.13 for WB. DE is the cheaper 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. DE is currently priced at a -3.87% to its one-year price target of 169.83. Comparatively, WB is -2.47% relative to its price target of 50.21. This suggests that DE 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. DE has a beta of 1.15 and WB’s beta is 2.20. DE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. DE has a short ratio of 3.31 compared to a short interest of 5.62 for WB. This implies that the market is currently less bearish on the outlook for DE.

Summary

Deere & Company (NYSE:DE) beats Weibo Corporation (NASDAQ:WB) on a total of 10 of the 14 factors compared between the two stocks. DE is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, DE is the cheaper of the two stocks on an earnings, book value and sales basis, DE is more undervalued relative to its price target. Finally, DE has better sentiment signals based on short interest.