Fitbit, Inc. (NYSE:FIT) shares are down more than -1.05% this year and recently decreased -4.24% or -$0.25 to settle at $5.65. Fortive Corporation (NYSE:FTV), on the other hand, is up 1.24% year to date as of 01/08/2018. It currently trades at $73.25 and has returned 1.24% during the past week.
Fitbit, Inc. (NYSE:FIT) and Fortive Corporation (NYSE:FTV) are the two most active stocks in the Scientific & Technical Instruments 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect FIT to grow earnings at a 25.30% annual rate over the next 5 years. Comparatively, FTV is expected to grow at a 8.50% annual rate. All else equal, FIT’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 27.29% for Fortive Corporation (FTV). FIT’s ROI is -10.60% while FTV has a ROI of 15.20%. The interpretation is that FTV’s business generates a higher return on investment than FIT’s.
Cash is king when it comes to investing. FIT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, FTV’s free cash flow per share was +0.74. On a percent-of-sales basis, FIT’s free cash flow was -0.57% while FTV converted 4.13% of its revenues into cash flow. This means that, for a given level of sales, FTV is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. FIT has a current ratio of 2.20 compared to 2.00 for FTV. This means that FIT can more easily cover its most immediate liabilities over the next twelve months. FIT’s debt-to-equity ratio is 0.00 versus a D/E of 1.06 for FTV. FTV is therefore the more solvent of the two companies, and has lower financial risk.
FIT trades at a P/B of 1.59, and a P/S of 0.84, compared to a forward P/E of 22.63, a P/B of 7.33, and a P/S of 3.98 for FTV. FIT 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
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. FIT is currently priced at a -15.8% to its one-year price target of 6.71. Comparatively, FTV is -5.23% relative to its price target of 77.29. This suggests that FIT 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 FIT and 2.40 for FTV, which implies that analysts are more bullish on the outlook for FIT.
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. FIT has a short ratio of 7.24 compared to a short interest of 4.16 for FTV. This implies that the market is currently less bearish on the outlook for FTV.
Fitbit, Inc. (NYSE:FIT) beats Fortive Corporation (NYSE:FTV) on a total of 7 of the 14 factors compared between the two stocks. FIT is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, FIT is the cheaper of the two stocks on an earnings, book value and sales basis, FIT is more undervalued relative to its price target. Finally, CY has better sentiment signals based on short interest.