Milacron Holdings Corp. (NYSE:MCRN) shares are up more than 39.87% this year and recently decreased -0.06% or -$0.01 to settle at $16.63. PACCAR Inc (NASDAQ:PCAR), on the other hand, is up 24.59% year to date as of 09/12/2019. It currently trades at $71.19 and has returned 4.38% during the past week.
Milacron Holdings Corp. (NYSE:MCRN) and PACCAR Inc (NASDAQ:PCAR) are the two most active stocks in the Diversified Machinery 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.
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 MCRN to grow earnings at a 3.10% annual rate over the next 5 years. Comparatively, PCAR is expected to grow at a -1.27% annual rate. All else equal, MCRN’s higher growth rate would imply a greater potential for capital appreciation.
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 20.15% for PACCAR Inc (PCAR). MCRN’s ROI is 6.60% while PCAR has a ROI of 12.20%. The interpretation is that PCAR’s business generates a higher return on investment than MCRN’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. MCRN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, PCAR’s free cash flow per share was +0.56. On a percent-of-sales basis, MCRN’s free cash flow was 0.11% while PCAR converted 0.83% of its revenues into cash flow. This means that, for a given level of sales, PCAR is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. MCRN has a current ratio of 2.70 compared to 4.80 for PCAR. This means that PCAR can more easily cover its most immediate liabilities over the next twelve months. MCRN’s debt-to-equity ratio is 1.55 versus a D/E of 1.10 for PCAR. MCRN is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MCRN trades at a forward P/E of 10.68, a P/B of 2.19, and a P/S of 1.03, compared to a forward P/E of 12.53, a P/B of 2.56, and a P/S of 0.98 for PCAR. 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. MCRN is currently priced at a -7.61% to its one-year price target of 18.00. Comparatively, PCAR is 0.35% relative to its price target of 70.94. This suggests that MCRN is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MCRN has a beta of 1.79 and PCAR’s beta is 1.26. PCAR’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. MCRN has a short ratio of 1.37 compared to a short interest of 4.90 for PCAR. This implies that the market is currently less bearish on the outlook for MCRN.
PACCAR Inc (NASDAQ:PCAR) beats Milacron Holdings Corp. (NYSE:MCRN) on a total of 8 of the 14 factors compared between the two stocks. PCAR is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk.