The shares of British American Tobacco p.l.c. (NYSE:BTI) and Red Hat, Inc. (NYSE:RHT) were among the active stocks of the last trading sessions. British American Tobacco p.l.c. (NYSE:BTI) soared to 3.18% closing at the price of $45.16 whereas the shares of Red Hat, Inc. (NYSE:RHT) soared 0.07% with the increase of 0.13 points closing at the price of $173.63. British American Tobacco p.l.c. has currently decrease -14.27% in its stock over the period of 6-months while its rival Red Hat, Inc. added 1.25% in the previous 6-months.
Now we have to analyze the facts that if the stocks were worthy off investors’ money? The facts to analyze here are risks, profitability, returns and price trends.
Returns and Profitability
Profitability and returns are the main reason of investment, the investors are looking for profits that they get and return they should expect over the period of time.
The first and foremost return that is considered while making an investment is the ROI or Return on Investment. The ROI is the ratio between the profit against the cost of investment. Currently the ROI of British American Tobacco p.l.c. (NYSE:BTI) is 4.5% while the ROI of Red Hat, Inc. (NYSE:RHT) is 16.9%. Another figure that is to be considered while analyzing the profitability of a share is its EBITDA margin, BTI’s EBITDA Margin is 12.68 whereas RHT’s is 33.71.
Both the profitability ratios suggest that Red Hat, Inc. (NYSE:RHT) is more suitable investment in terms of profitability and return.
EPS & Surprise Factor
Technical Analysis of British American Tobacco p.l.c. & Red Hat, Inc.
Moving average convergence divergence (MACD) shows that British American Tobacco p.l.c. (NYSE:BTI) is on a PRICE RELATIVITY trend While Red Hat, Inc. (NYSE:RHT) is on PRICE RELATIVITY trend. The trend for the past 10-days shows that the British American Tobacco p.l.c. was in BEARISH territory and Red Hat, Inc. was in BULLISH territory.
BTI’s current statistics gauge that the stock candle is BEARISH with HIGH volatility. While RHT’s candle is BEARISH with LOW.
EPS Growth Rate: BTI’s 10.4% versus RHT’s 16.3%
Another shareholder value can be analyzed through the EPS growth rate; the next 5 years EPS growth rate is predicted by the analysts after the analyzing the previous trends. The next 5 year EPS growth rate of British American Tobacco p.l.c. (NYSE:BTI) is predicted at 10.4% while Red Hat, Inc. (NYSE:RHT) stands at 16.3%. These numbers suggest that RHT is more suitable investment in terms of EPS growth rate.
Financial Risk and Liquidity Concerns
The current ratio and the debt ratio are the two ratios that show the investor how quickly the company is able to payout its debt and how quickly it can cover its obligations. The current ratio of BTI stands at 0.8 while RHT is at 1.2 whereas the debt ratio of the prior is 0.78 while the debt ratio of the later is 0.4.
The values of the both ratios suggest that one is more liquid and other investment is more risk free.
While making an investment, another main factor to consider before investing is the analyst recommendation on the scale of 1 to 5 where 1 is strong buy, 2 is buy, 3 is hold, 4 is Sell and 5 is strong sell. Analyst recommend 1.7 for BTI and 2.4 for RHT which means BTI has Buy rating whereas RHT has Hold rating.
Another recommendation of analyst that is to be considered worthy is the price target. The mare price or price trend does not suggest the suitability of a stock. The price target set by analyst is also to be considered while investing as it suggests to what extent the stock will rise or fall in the near future. The price target set for BTI is $53.86 which is 16.15% of its current price while RHT has price target of 177.13 which is 1.98% of its current price.
Valuation is the process of determining the company’s worth for an investor, the valuation ratios give an insight to that worthiness.
BTI currently has price to earning P/E ratio of 2.74 whereas RHT has 78 while the forward P/E ratio for the prior stands at 11.22 and for the later it depicts the value of 43.63.
The price to Book P/B for BTI is 1.27, Price to Sale is at 3.42 and for RHT these ratios stand at 23.78 and 9.69.