Hewlett Packard Enterprise Company (NYSE:HPE) and Dell Technologies Inc. (NYSE:DVMT) are the two most active stocks in the Diversified Computer Systems 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect HPE to grow earnings at a -9.51% annual rate over the next 5 years. Comparatively, DVMT is expected to grow at a 14.00% annual rate. All else equal, DVMT’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. Hewlett Packard Enterprise Company (HPE) has an EBITDA margin of 16.77%, compared to an EBITDA margin of 1.04% for Dell Technologies Inc. (DVMT). This suggests that HPE underlying business is more profitable. HPE’s ROI is 6.90% while DVMT has a ROI of -3.10%. The interpretation is that HPE’s business generates a higher return on investment than DVMT’s. Cash Flow The amount of free cash flow available to investors is ultimately what determines the value of a stock. HPE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, DVMT’s free cash flow per share was -0.01. On a percent-of-sales basis, HPE’s free cash flow was -0.46% while DVMT converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, DVMT is able to generate more free cash flow for investors.  Liquidity and Financial Risk Balance sheet risk is one of the biggest factors to consider before investing. HPE has a current ratio of 1.20 compared to 0.80 for DVMT. This means that HPE can more easily cover its most immediate liabilities over the next twelve months. HPE’s debt-to-equity ratio is 0.48 versus a D/E of 4.32 for DVMT. DVMT is therefore the more solvent of the two companies, and has lower financial risk. Valuation HPE trades at a forward P/E of 10.74, a P/B of 0.82, and a P/S of 0.60, compared to a forward P/B of 5.01, and a P/S of 0.22 for DVMT. HPE is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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 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. HPE is currently priced at a -26.05% to its one-year price target of $19.35. Comparatively, DVMT is -0.32% relative to its price target of $75.00. This suggests that HPE is the better investment over the next year. The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for HPE and 1.00 for DVMT, which implies that analysts are more bullish on the outlook for HPE. Insider Activity and Investor Sentiment Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. HPE has a short ratio of 2.71 compared to a short interest of 1.31 for DVMT. This implies that the market is currently less bearish on the outlook for DVMT. Summary #DellTechnologies Inc. (NYSE: #DVMT ) beats #HewlettPackardEnterprise Company (NYSE: #HPE ) on a total of 6 of the 12 factors compared between the two stocks. DVMT is more profitable, has higher cash flow per share and has a higher cash conversion rate. Finally, DVMT has better sentiment signals based on short interest.
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