Intro to Investment Research 5 - Compare Competing Investments

July 9, 2013 |

This is the fifth and final post in our Introduction to Investment Research blog series. Parts one, two, three, and four, have brought us up to the point where we are comparing Nu Skin Enterprises (NUS) and Church & Dwight Company (CHD), both of which passed our original ranked screener and look like solid growth stocks in the Household & Personal Products industry. Now we’re going to use Stock Rover to compare them head to head to see which would best fit our investment needs.

Chart Competing Investments

First, we’ll put NUS and CHD in the chart to see how the stock has performed over the past five years.

NUS and CHD charted

You can see the CHD has had a much steadier climb upwards, whereas NUS has been a much wilder ride. But, CHD is only up 133%, and NUS is up over 300% so you would have been rewarded had you stuck out the bumps.

Compare Competing Investments in the Table

Now let’s add CHD and NUS as research tickers in the Table, and then click through various Views to see how they compete in different areas. First, we’ll just look at the Profile View.

NUS and CHD with profile metrics

Here we see that they’re both traded on the NYSE, they have a similar number of employees, they have the same dividend yield, but CHD has much more institutional ownership: 81.8% versus NUS’s 6.7%. And we can see the numbers behind the different volatility patterns we saw in the chart—NUS has a 1-year beta of over 1, so it is more volatile than the benchmark of the S&P 500, whereas CHD has a much smaller beta of 0.59, which is more typical of the consumer defensive sector that both of these stocks are in.

Now let’s look at the historical returns for both of these companies, so we’ll switch to the Historical Returns View tab.

NUS and CHD with historical returns metrics

Here we can see the CHD recently has been a little weak, but overall it has very positive returns. But, NUS has had stronger returns in every period, which is consistent with what we’ve seen with these two stocks so far.

We can also look at the metrics in the Returns vs. S&P 500 View tab and see a similar story, NUS has been outperforming the S&P 500, whereas CHD has slipped in the past year.

NUS and CHD with returns vs s&p 500 metrics

Next let’s look at the Dividends, and we’ll click the arrow icons to the left of the ticker symbols to expand to see yearly data.

NUS and CHD with dividends metrics

Here we can see that both CHD and NUS have been rapidly increasing their dividend stream over the past six years, However CHD has increased its payout ratio quite a bit, which means it’s paying out more of its earnings as dividends, whereas NUS has actually decreased its Payout Ratio from six years ago. While both companies have excellent dividend growth track records, these metrics are telling us that NUS has significantly more headroom for aggressive dividend increases in the future.

Next we’ll look at the Profitability View tab, again with the rows expanded to show historical data.

NUS and CHD with profitability metrics

We already saw in Part 3 that NUS had improved its Return on Assets pretty dramatically in the past six years—from 6.4% to 18.9%. When we compare that to CHD we see that, while its Return on Assets are already pretty solid, they aren’t really improving that much. Return on Equity tells a similar story, with NUS increasing ROE from 15.9% in 2007 to 37% at the end of 2012, and CHD having only a moderate increase in the same time period, from 15.6% to 17.4%. Return on Invested Capital (ROIC) is similar, with more improvement coming from NUS. While CHD has a higher net margin, NUS has improved its net margin more over the past 6 years.

All in all, the profitability tab shows us that both companies are on the right track to increased profitability. NUS is improving at a faster clip, while CHD is again improving at a slower, but still steady, rate.

Next we’ll look at the Growth tab, which includes the graphical metrics for yearly EPS growth and yearly sales growth that give more information when you mouse over them (shown below.)

CHD with Yearly EPS numbers

CHD has lower expected next year’s EPS and growth—$3.11 and 11.1% respectively—than NUS, which has $4.89 and 14% respectively.

NUS with Yearly EPS numbers

Sales tell a similar story, with CHD estimated growing sales at 4.3% next year, which is moderate, in keeping with its moderate sales growth over the past four years.

CHD with Yearly Sales numbers

NUS has had much stronger sales growth, and that trend seems to be ready to continue, with next year’s estimated sales growth at 9.1%, which is quite robust.

NUS with Yearly Sales numbers

Lastly, let’s look at its Morningstar grades, and we’ll expand the rows again in order to see the historical data.

NUS and CHD with grades metrics

NUS has had its financial health sector grade come up from a D to a B, and its profitability sector grade has gone from a B to an A, so those are good signs. CHD also had its financial health sector grade go from a D to a B, whereas its profitability sector grade has been steady at a B. Again, this is consistent with everything we’ve seen about CHD so far.

So far, really the only thing not to like about NUS is its volatility, and CHD doesn’t look bad either. While CHD isn’t as dynamic as NUS, it is steadily doing well. One possibility would be to commit a portion of the capital earmarked to NUS to CHD if I decide I couldn’t stomach NUS’s volatility. Before I decide to commit capital to either one of these companies however, I would back through my To Do list in my research note, which means reading the 10-K annual reports and articles that I’d saved for NUS. I’d also want to perform similar research for CHD.

And that’s pretty much it! Now you can take the blueprint for this process and tailor it to fit your own investment style. Good luck, and may the markets be with you.

 

Link to part 1 – Get a Feel for the Market

Link to part 2 – Finding a Stock to Research

Link to part 3 – Researching a Company

Link to part 4 – Compare Against Peers





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