Dissecting the Numbers for Boyd Gaming Corporation (BYD) and Century Aluminum Company (CENX)

Boyd Gaming Corporation (NYSE:BYD) shares are up more than 28.54% this year and recently increased 0.79% or $0.21 to settle at $26.71. Century Aluminum Company (NASDAQ:CENX), on the other hand, is down -5.20% year to date as of 09/12/2019. It currently trades at $6.93 and has returned 19.69% during the past week.

Boyd Gaming Corporation (NYSE:BYD) and Century Aluminum Company (NASDAQ:CENX) are the two most active stocks in the Resorts & Casinos industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect BYD to grow earnings at a 13.35% annual rate over the next 5 years.

Profitability and Returns

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. Boyd Gaming Corporation (BYD) has an EBITDA margin of 22.15%. This suggests that BYD underlying business is more profitable BYD’s ROI is 6.10% while CENX has a ROI of -5.60%. The interpretation is that BYD’s business generates a higher return on investment than CENX’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. BYD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.64. Comparatively, CENX’s free cash flow per share was -0.19. On a percent-of-sales basis, BYD’s free cash flow was 2.71% while CENX converted -0.89% of its revenues into cash flow. This means that, for a given level of sales, BYD is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. BYD has a current ratio of 0.70 compared to 2.50 for CENX. This means that CENX can more easily cover its most immediate liabilities over the next twelve months. BYD’s debt-to-equity ratio is 3.22 versus a D/E of 0.43 for CENX. BYD is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BYD trades at a forward P/E of 13.38, a P/B of 2.50, and a P/S of 0.97, compared to a forward P/E of 19.30, a P/B of 0.87, and a P/S of 0.33 for CENX. BYD is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. BYD is currently priced at a -25.81% to its one-year price target of 36.00. Comparatively, CENX is -23% relative to its price target of 9.00. This suggests that BYD is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. BYD has a beta of 2.17 and CENX’s beta is 1.93. CENX’s shares are therefore the less volatile of the two stocks.

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. BYD has a short ratio of 6.72 compared to a short interest of 4.88 for CENX. This implies that the market is currently less bearish on the outlook for CENX.

Summary

Boyd Gaming Corporation (NYSE:BYD) beats Century Aluminum Company (NASDAQ:CENX) on a total of 8 of the 14 factors compared between the two stocks. BYD is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. BYD is more undervalued relative to its price target.