Better Buy: Diageo or Brown-Forman?

In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is Diageo (NYSE: DEO  ) vs. Brown-Forman (NYSE: BF-B  ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

	Factor	Diageo	Brown-Forman
Cheapness	(P/E ratio)	15.8	16.6
Growth	(5-year growth rate)	4.8%	10.7%
Operations	(net margin %)	18.5%	14.12%
Balance Sheet	(debt/equity ratio)	2.67	.51
CAPS Rating	(scale of 1 to 5 stars)

Round 1: Cheapness

Advantage: Diageo. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: Brown-Forman. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: Diageo. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: Brown-Forman. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Brown-Forman. A company’s CAPS rating is our community’s opinion of the stock. Brown-Forman has a slightly greater numerical CAPS rating than Diageo (even though they have the same number of stars). You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to our CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Fortune Brands (NYSE: FO  ) and Constellation Brands (NYSE: STZ  ) . But these basic numbers suggest that Brown-Forman is a better buy. What do you think? Let us know in the comments section below.