Limelight Networks, Inc. (NASDAQ:LLNW) shares are up more than 136.51% this year and recently increased 4.75% or $0.27 to settle at $5.96. The Meet Group, Inc. (NASDAQ:MEET), on the other hand, is down -51.32% year to date as of 11/14/2017. It currently trades at $2.40 and has returned -29.20% during the past week.
Limelight Networks, Inc. (NASDAQ:LLNW) and The Meet Group, Inc. (NASDAQ:MEET) are the two most active stocks in the Internet Information 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 LLNW to grow earnings at a -3.00% annual rate over the next 5 years. Comparatively, MEET is expected to grow at a 20.00% annual rate. All else equal, MEET’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 15.71% for The Meet Group, Inc. (MEET). LLNW’s ROI is -53.10% while MEET has a ROI of 23.70%. The interpretation is that MEET’s business generates a higher return on investment than LLNW’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. LLNW’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, MEET’s free cash flow per share was +0.07. On a percent-of-sales basis, LLNW’s free cash flow was -0% while MEET converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, MEET is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. LLNW has a current ratio of 2.00 compared to 2.30 for MEET. This means that MEET can more easily cover its most immediate liabilities over the next twelve months. LLNW’s debt-to-equity ratio is 0.00 versus a D/E of 0.05 for MEET. MEET is therefore the more solvent of the two companies, and has lower financial risk.
LLNW trades at a forward P/E of 52.74, a P/B of 4.58, and a P/S of 3.62, compared to a forward P/E of 5.54, a P/B of 0.68, and a P/S of 1.56 for MEET. LLNW is the expensive of the two stocks on an earnings, book value and sales basis. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. LLNW is currently priced at a 1.36% to its one-year price target of 5.88. Comparatively, MEET is -46.67% relative to its price target of 4.50. This suggests that MEET 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 2.20 for LLNW and 2.50 for MEET, which implies that analysts are more bullish on the outlook for MEET.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. LLNW has a beta of 2.54 and MEET’s beta is 1.11. MEET’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. LLNW has a short ratio of 1.64 compared to a short interest of 6.55 for MEET. This implies that the market is currently less bearish on the outlook for LLNW.
The Meet Group, Inc. (NASDAQ:MEET) beats Limelight Networks, Inc. (NASDAQ:LLNW) on a total of 11 of the 14 factors compared between the two stocks. MEET has lower financial risk, is more profitable, 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, MEET is the cheaper of the two stocks on an earnings, book value and sales basis, MEET is more undervalued relative to its price target. Finally, RDFN has better sentiment signals based on short interest.