ILG, Inc. (NASDAQ:ILG) shares are up more than 54.71% this year and recently decreased -1.75% or -$0.5 to settle at $28.11. Marriott Vacations Worldwide Corporation (NYSE:VAC), on the other hand, is up 59.63% year to date as of 11/21/2017. It currently trades at $135.45 and has returned 1.50% during the past week.
ILG, Inc. (NASDAQ:ILG) and Marriott Vacations Worldwide Corporation (NYSE:VAC) are the two most active stocks in the Resorts & Casinos industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ILG to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, VAC is expected to grow at a 10.52% annual rate. All else equal, ILG’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 13.74% for Marriott Vacations Worldwide Corporation (VAC). ILG’s ROI is 12.90% while VAC has a ROI of 8.50%. The interpretation is that ILG’s business generates a higher return on investment than VAC’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ILG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, VAC’s free cash flow per share was +1.69. On a percent-of-sales basis, ILG’s free cash flow was -0.91% while VAC converted 2.47% of its revenues into cash flow. This means that, for a given level of sales, VAC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
ILG’s debt-to-equity ratio is 0.42 versus a D/E of 1.21 for VAC. VAC is therefore the more solvent of the two companies, and has lower financial risk.
ILG trades at a forward P/E of 20.98, a P/B of 2.17, and a P/S of 1.94, compared to a forward P/E of 22.11, a P/B of 3.87, and a P/S of 1.79 for VAC. 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. ILG is currently priced at a -15.33% to its one-year price target of 33.20. Comparatively, VAC is -4.28% relative to its price target of 141.50. This suggests that ILG 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 1.60 for ILG and 2.00 for VAC, which implies that analysts are more bullish on the outlook for VAC.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. ILG has a beta of 1.53 and VAC’s beta is 1.20. VAC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. ILG has a short ratio of 2.53 compared to a short interest of 8.22 for VAC. This implies that the market is currently less bearish on the outlook for ILG.
ILG, Inc. (NASDAQ:ILG) beats Marriott Vacations Worldwide Corporation (NYSE:VAC) on a total of 9 of the 14 factors compared between the two stocks. ILG is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, ILG is the cheaper of the two stocks on an earnings and book value, ILG is more undervalued relative to its price target. Finally, ILG has better sentiment signals based on short interest.