Hertz Global Holdings, Inc. (NYSE:HTZ) shares are down more than -6.26% this year and recently increased 0.40% or $0.08 to settle at $20.21. Rent-A-Center, Inc. (NASDAQ:RCII), on the other hand, is up 4.71% year to date as of 12/08/2017. It currently trades at $11.78 and has returned 2.43% during the past week.
Hertz Global Holdings, Inc. (NYSE:HTZ) and Rent-A-Center, Inc. (NASDAQ:RCII) are the two most active stocks in the Rental & Leasing Services 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, RCII is expected to grow at a 5.00% annual rate. All else equal, RCII’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. Hertz Global Holdings, Inc. (HTZ) has an EBITDA margin of -1664.26%. This suggests that RCII underlying business is more profitable HTZ’s ROI is 0.50% while RCII has a ROI of -5.90%. The interpretation is that HTZ’s business generates a higher return on investment than RCII’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. HTZ’s free cash flow (“FCF”) per share for the trailing twelve months was -12.05. Comparatively, RCII’s free cash flow per share was +0.11. On a percent-of-sales basis, HTZ’s free cash flow was -11.46% while RCII converted 0.2% of its revenues into cash flow. This means that, for a given level of sales, RCII is able to generate more free cash flow for investors.
HTZ’s debt-to-equity ratio is 22.23 versus a D/E of 2.69 for RCII. HTZ is therefore the more solvent of the two companies, and has lower financial risk.
HTZ trades at a P/B of 2.22, and a P/S of 0.19, compared to a forward P/E of 22.31, a P/B of 2.65, and a P/S of 0.23 for RCII. HTZ is the cheaper 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
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. HTZ is currently priced at a -5.74% to its one-year price target of 21.44. Comparatively, RCII is 5.27% relative to its price target of 11.19. This suggests that HTZ 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 3.10 for HTZ and 2.60 for RCII, which implies that analysts are more bullish on the outlook for HTZ.
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. HTZ has a beta of 2.11 and RCII’s beta is 0.68. RCII’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. HTZ has a short ratio of 4.81 compared to a short interest of 15.16 for RCII. This implies that the market is currently less bearish on the outlook for HTZ.
Rent-A-Center, Inc. (NASDAQ:RCII) beats Hertz Global Holdings, Inc. (NYSE:HTZ) on a total of 7 of the 14 factors compared between the two stocks. RCII generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HTZ is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TAL has better sentiment signals based on short interest.