OneMain Holdings, Inc. (NYSE:OMF) shares are up more than 32.36% this year and recently increased 29.13% or $7.76 to settle at $34.40. Blackhawk Network Holdings, Inc. (NASDAQ:HAWK), on the other hand, is up 0.98% year to date as of 01/04/2018. It currently trades at $36.00 and has returned 5.26% during the past week.
OneMain Holdings, Inc. (NYSE:OMF) and Blackhawk Network Holdings, Inc. (NASDAQ:HAWK) are the two most active stocks in the Credit 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect OMF to grow earnings at a 6.10% annual rate over the next 5 years. Comparatively, HAWK is expected to grow at a 15.52% annual rate. All else equal, HAWK’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. EBITDA margin of 6.33% for Blackhawk Network Holdings, Inc. (HAWK). OMF’s ROI is 1.40% while HAWK has a ROI of 2.00%. The interpretation is that HAWK’s business generates a higher return on investment than OMF’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. OMF’s free cash flow (“FCF”) per share for the trailing twelve months was +3.68. Comparatively, HAWK’s free cash flow per share was +0.70. On a percent-of-sales basis, OMF’s free cash flow was 12.83% while HAWK converted 2.09% of its revenues into cash flow. This means that, for a given level of sales, OMF is able to generate more free cash flow for investors.
Liquidity and Financial Risk
OMF’s debt-to-equity ratio is 4.53 versus a D/E of 0.76 for HAWK. OMF is therefore the more solvent of the two companies, and has lower financial risk.
OMF trades at a forward P/E of 8.08, a P/B of 1.44, and a P/S of 1.27, compared to a forward P/E of 17.34, a P/B of 2.48, and a P/S of 0.99 for HAWK. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. OMF is currently priced at a 3.33% to its one-year price target of 33.29. Comparatively, HAWK is -19.62% relative to its price target of 44.79. This suggests that HAWK 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 2.40 for OMF and 2.00 for HAWK, which implies that analysts are more bullish on the outlook for OMF.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. OMF has a beta of 2.74 and HAWK’s beta is 0.47. HAWK’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. OMF has a short ratio of 3.52 compared to a short interest of 4.94 for HAWK. This implies that the market is currently less bearish on the outlook for OMF.
Blackhawk Network Holdings, Inc. (NASDAQ:HAWK) beats OneMain Holdings, Inc. (NYSE:OMF) on a total of 9 of the 14 factors compared between the two stocks. HAWK has higher cash flow per share, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. HAWK is more undervalued relative to its price target. Finally, TCAP has better sentiment signals based on short interest.