Vantiv, Inc. (NYSE:VNTV) shares are up more than 4.96% this year and recently increased 3.88% or $2.88 to settle at $77.20. Apptio, Inc. (NASDAQ:APTI), on the other hand, is up 3.53% year to date as of 01/04/2018. It currently trades at $24.35 and has returned 3.09% during the past week.
Vantiv, Inc. (NYSE:VNTV) and Apptio, Inc. (NASDAQ:APTI) are the two most active stocks in the Business Services 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.
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. Analysts expect VNTV to grow earnings at a 14.82% annual rate over the next 5 years.
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. Vantiv, Inc. (VNTV) has an EBITDA margin of 24.08%. This suggests that VNTV underlying business is more profitable VNTV’s ROI is 9.40% while APTI has a ROI of -39.90%. The interpretation is that VNTV’s business generates a higher return on investment than APTI’s.
The value of a stock is simply the present value of its future free cash flows. VNTV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.43. Comparatively, APTI’s free cash flow per share was +0.21. On a percent-of-sales basis, VNTV’s free cash flow was 2.14% while APTI converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, VNTV 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. VNTV has a current ratio of 0.70 compared to 1.60 for APTI. This means that APTI can more easily cover its most immediate liabilities over the next twelve months. VNTV’s debt-to-equity ratio is 8.50 versus a D/E of 0.00 for APTI. VNTV is therefore the more solvent of the two companies, and has lower financial risk.
VNTV trades at a forward P/E of 20.50, a P/B of 22.31, and a P/S of 3.52, compared to a P/B of 12.88, and a P/S of 5.52 for APTI. VNTV is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
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”. VNTV is currently priced at a -7.71% to its one-year price target of 83.65. Comparatively, APTI is -3.87% relative to its price target of 25.33. This suggests that VNTV 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 VNTV and 1.90 for APTI, which implies that analysts are more bullish on the outlook for APTI.
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. VNTV has a short ratio of 13.39 compared to a short interest of 3.24 for APTI. This implies that the market is currently less bearish on the outlook for APTI.
Vantiv, Inc. (NYSE:VNTV) beats Apptio, Inc. (NASDAQ:APTI) on a total of 8 of the 14 factors compared between the two stocks. VNTV is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. VNTV is more undervalued relative to its price target. Finally, MSFT has better sentiment signals based on short interest.