SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) shares are up more than 41.54% this year and recently increased 1.38% or $0.55 to settle at $40.48. Aspen Technology, Inc. (NASDAQ:AZPN), on the other hand, is up 19.13% year to date as of 11/02/2017. It currently trades at $65.14 and has returned -2.38% during the past week.
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) and Aspen Technology, Inc. (NASDAQ:AZPN) are the two most active stocks in the Business Software & Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 SSNC to grow earnings at a 12.00% annual rate over the next 5 years. Comparatively, AZPN is expected to grow at a 13.00% annual rate. All else equal, AZPN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 44.68% for Aspen Technology, Inc. (AZPN). SSNC’s ROI is 5.40% while AZPN has a ROI of -135.70%. The interpretation is that SSNC’s business generates a higher return on investment than AZPN’s.
The value of a stock is simply the present value of its future free cash flows. SSNC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, AZPN’s free cash flow per share was +0.17. On a percent-of-sales basis, SSNC’s free cash flow was 5.79% while AZPN converted 0% of its revenues into cash flow. This means that, for a given level of sales, SSNC 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. SSNC has a current ratio of 0.90 compared to 0.20 for AZPN. This means that SSNC can more easily cover its most immediate liabilities over the next twelve months.
SSNC trades at a forward P/E of 18.37, a P/B of 3.42, and a P/S of 5.07, compared to a forward P/E of 29.41, and a P/S of 10.08 for AZPN. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SSNC is currently priced at a -8.62% to its one-year price target of 44.30. Comparatively, AZPN is 3.94% relative to its price target of 62.67. This suggests that SSNC 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 1.80 for SSNC and 2.60 for AZPN, which implies that analysts are more bullish on the outlook for AZPN.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SSNC has a beta of 1.09 and AZPN’s beta is 1.23. SSNC’s shares are therefore the less volatile of the two stocks.
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. SSNC has a short ratio of 6.22 compared to a short interest of 5.46 for AZPN. This implies that the market is currently less bearish on the outlook for AZPN.
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) beats Aspen Technology, Inc. (NASDAQ:AZPN) on a total of 9 of the 14 factors compared between the two stocks. SSNC generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, SSNC is the cheaper of the two stocks on an earnings and sales basis, SSNC is more undervalued relative to its price target. Finally, CTSH has better sentiment signals based on short interest.