IZEA, Inc. (NASDAQ:IZEA) shares are up more than 30.16% this year and recently decreased -13.80% or -$0.94 to settle at $5.87. TrueCar, Inc. (NASDAQ:TRUE), on the other hand, is up 27.68% year to date as of 10/03/2017. It currently trades at $15.96 and has returned 8.20% during the past week.
IZEA, Inc. (NASDAQ:IZEA) and TrueCar, Inc. (NASDAQ:TRUE) are the two most active stocks in the Internet Service Providers 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect IZEA to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, TRUE is expected to grow at a 53.00% annual rate. All else equal, TRUE’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. IZEA’s ROI is -83.10% while TRUE has a ROI of -15.60%. The interpretation is that TRUE’s business generates a higher return on investment than IZEA’s.
Cash is king when it comes to investing. IZEA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, TRUE’s free cash flow per share was +0.03. On a percent-of-sales basis, IZEA’s free cash flow was -0% while TRUE converted 0% of its revenues into cash flow. This means that, for a given level of sales, IZEA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. IZEA has a current ratio of 1.10 compared to 6.10 for TRUE. This means that TRUE can more easily cover its most immediate liabilities over the next twelve months. IZEA’s debt-to-equity ratio is 0.00 versus a D/E of 0.10 for TRUE. TRUE is therefore the more solvent of the two companies, and has lower financial risk.
IZEA trades at a forward P/B of 5.39, and a P/S of 1.04, compared to a forward P/E of 108.57, a P/B of 5.08, and a P/S of 4.88 for TRUE. 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. IZEA is currently priced at a -24.26% to its one-year price target of $7.75. Comparatively, TRUE is -18.98% relative to its price target of $19.70. This suggests that IZEA 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 1.70 for IZEA and 2.30 for TRUE, which implies that analysts are more bullish on the outlook for TRUE.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. IZEA has a beta of 0.62 and TRUE’s beta is 2.93. IZEA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. IZEA has a short ratio of 0.00 compared to a short interest of 11.42 for TRUE. This implies that the market is currently less bearish on the outlook for IZEA.
IZEA, Inc. (NASDAQ:IZEA) beats TrueCar, Inc. (NASDAQ:TRUE) on a total of 7 of the 14 factors compared between the two stocks. IZEA has lower financial risk. In terms of valuation, IZEA is the cheaper of the two stocks on an earnings and sales basis, IZEA is more undervalued relative to its price target. Finally, IZEA has better sentiment signals based on short interest.