Stocks pairs trading: LW vs EXPD
Let's analyze the trade potential of Lamb Weston Holdings Inc. (LW) and Expeditors International of Washington, Inc. (EXPD) by examining key financial metrics and market performance to determine reasons for potentially going long on LW and short on EXPD.
Forward P/E Ratio: LW's forward P/E of 13.39 is lower than EXPD’s forward P/E of 22.92, suggesting that LW is priced more attractively relative to future earnings expectations. This lower valuation might make LW a more appealing investment.
EPS Forecast for Next Year: LW is expected to achieve an EPS of $6.25 next year, which indicates a robust growth of 12.40% over this year's performance. In contrast, EXPD's EPS growth next year is expected to be 6.63%, showing lesser growth potential.
Year-to-Date Performance: LW has seen a decline of 22.58% year-to-date, while EXPD also faced a decrease of 7.98%. Despite both showing declines, LW's greater dip might suggest a potential rebound opportunity if market conditions improve, given its lower valuation and expected earnings growth.
Profit Margin Comparison: LW operates with a profit margin of 16.71%, substantially higher than EXPD’s 7.81%. This suggests LW is more efficient in converting sales into net income, an attractive trait for long-term investments.
Market Performance Trends: LW has experienced significant negative performance over the last quarter and half-year period. However, its fundamentals like strong EPS growth and high profit margins support a potential recovery. On the other hand, EXPD’s relatively stable but underperforming financial indicators paired with a significant drop in sales year over year (-40.57%) make it a candidate for a short position.
Analyst Recommendations: LW has a more favorable recommendation score of 1.38 compared to EXPD’s 3.88, indicating stronger analyst confidence in LW’s market position and future performance.
Decision:
Long on 1 LW: This position is supported by LW’s lower forward valuation, impressive near-term earnings growth forecast, and stronger profit margins, which all suggest a potential for market revaluation upward.
Short on 1 EXPD: Given its higher valuation, weaker growth prospects in EPS, and significant reduction in sales, coupled with relatively poor market performance indicators, shorting EXPD could be advantageous if these trends continue.
Forward P/E Ratio: LW's forward P/E of 13.39 is lower than EXPD’s forward P/E of 22.92, suggesting that LW is priced more attractively relative to future earnings expectations. This lower valuation might make LW a more appealing investment.
EPS Forecast for Next Year: LW is expected to achieve an EPS of $6.25 next year, which indicates a robust growth of 12.40% over this year's performance. In contrast, EXPD's EPS growth next year is expected to be 6.63%, showing lesser growth potential.
Year-to-Date Performance: LW has seen a decline of 22.58% year-to-date, while EXPD also faced a decrease of 7.98%. Despite both showing declines, LW's greater dip might suggest a potential rebound opportunity if market conditions improve, given its lower valuation and expected earnings growth.
Profit Margin Comparison: LW operates with a profit margin of 16.71%, substantially higher than EXPD’s 7.81%. This suggests LW is more efficient in converting sales into net income, an attractive trait for long-term investments.
Market Performance Trends: LW has experienced significant negative performance over the last quarter and half-year period. However, its fundamentals like strong EPS growth and high profit margins support a potential recovery. On the other hand, EXPD’s relatively stable but underperforming financial indicators paired with a significant drop in sales year over year (-40.57%) make it a candidate for a short position.
Analyst Recommendations: LW has a more favorable recommendation score of 1.38 compared to EXPD’s 3.88, indicating stronger analyst confidence in LW’s market position and future performance.
Decision:
Long on 1 LW: This position is supported by LW’s lower forward valuation, impressive near-term earnings growth forecast, and stronger profit margins, which all suggest a potential for market revaluation upward.
Short on 1 EXPD: Given its higher valuation, weaker growth prospects in EPS, and significant reduction in sales, coupled with relatively poor market performance indicators, shorting EXPD could be advantageous if these trends continue.
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