Spok Holdings, Inc. (NASDAQ:SPOK) shares are down more than -17.59% this year and recently increased 0.88% or $0.15 to settle at $17.10. RigNet, Inc. (NASDAQ:RNET), on the other hand, is down -35.21% year to date as of 11/17/2017. It currently trades at $15.00 and has returned -0.66% during the past week.
Spok Holdings, Inc. (NASDAQ:SPOK) and RigNet, Inc. (NASDAQ:RNET) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, RNET is expected to grow at a 20.00% annual rate. All else equal, RNET’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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 11.83% for RigNet, Inc. (RNET). SPOK’s ROI is 4.10% while RNET has a ROI of -4.50%. The interpretation is that SPOK’s business generates a higher return on investment than RNET’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SPOK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.15. Comparatively, RNET’s free cash flow per share was +0.27. On a percent-of-sales basis, SPOK’s free cash flow was 0% while RNET converted 0% of its revenues into cash flow. This means that, for a given level of sales, SPOK 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. SPOK has a current ratio of 2.80 compared to 2.00 for RNET. This means that SPOK can more easily cover its most immediate liabilities over the next twelve months. SPOK’s debt-to-equity ratio is 0.00 versus a D/E of 0.53 for RNET. RNET is therefore the more solvent of the two companies, and has lower financial risk.
SPOK trades at a P/B of 1.09, and a P/S of 1.97, compared to a P/B of 2.42, and a P/S of 1.35 for RNET. SPOK is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. SPOK is currently priced at a 144.29% to its one-year price target of 7.00. Comparatively, RNET is -21.05% relative to its price target of 19.00. This suggests that RNET is the better investment over the next year.
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. SPOK has a beta of 0.61 and RNET’s beta is 0.98. SPOK’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.SPOK has a short ratio of 2.24 compared to a short interest of 4.32 for RNET. This implies that the market is currently less bearish on the outlook for SPOK.
Spok Holdings, Inc. (NASDAQ:SPOK) beats RigNet, Inc. (NASDAQ:RNET) on a total of 8 of the 14 factors compared between the two stocks. SPOK is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. Finally, SPOK has better sentiment signals based on short interest.