United Natural Foods, Inc. (NASDAQ:UNFI) shares are down more than -5.13% this year and recently increased 2.10% or $0.96 to settle at $46.74. The Hain Celestial Group, Inc. (NASDAQ:HAIN), on the other hand, is down -6.94% year to date as of 01/10/2018. It currently trades at $39.45 and has returned -2.83% during the past week.
United Natural Foods, Inc. (NASDAQ:UNFI) and The Hain Celestial Group, Inc. (NASDAQ:HAIN) are the two most active stocks in the Food Wholesale industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect UNFI to grow earnings at a 6.23% annual rate over the next 5 years. Comparatively, HAIN is expected to grow at a 12.63% annual rate. All else equal, HAIN’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. , compared to an EBITDA margin of 5.11% for The Hain Celestial Group, Inc. (HAIN). UNFI’s ROI is 6.90% while HAIN has a ROI of 3.60%. The interpretation is that UNFI’s business generates a higher return on investment than HAIN’s.
Cash is king when it comes to investing. UNFI’s free cash flow (“FCF”) per share for the trailing twelve months was -1.52. Comparatively, HAIN’s free cash flow per share was -0.33. On a percent-of-sales basis, UNFI’s free cash flow was -0.83% while HAIN converted -1.2% of its revenues into cash flow. This means that, for a given level of sales, UNFI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. UNFI has a current ratio of 2.30 compared to 2.50 for HAIN. This means that HAIN can more easily cover its most immediate liabilities over the next twelve months. UNFI’s debt-to-equity ratio is 0.26 versus a D/E of 0.43 for HAIN. HAIN is therefore the more solvent of the two companies, and has lower financial risk.
UNFI trades at a forward P/E of 15.21, a P/B of 1.39, and a P/S of 0.25, compared to a forward P/E of 20.92, a P/B of 2.32, and a P/S of 1.43 for HAIN. UNFI 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. UNFI is currently priced at a -0.55% to its one-year price target of 47.00. Comparatively, HAIN is -6.91% relative to its price target of 42.38. This suggests that HAIN 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 2.90 for UNFI and 2.50 for HAIN, which implies that analysts are more bullish on the outlook for UNFI.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. UNFI has a beta of 1.49 and HAIN’s beta is 1.26. HAIN’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. UNFI has a short ratio of 8.26 compared to a short interest of 5.05 for HAIN. This implies that the market is currently less bearish on the outlook for HAIN.
The Hain Celestial Group, Inc. (NASDAQ:HAIN) beats United Natural Foods, Inc. (NASDAQ:UNFI) on a total of 8 of the 14 factors compared between the two stocks. HAIN generates a higher return on investment, is more profitable, has higher cash flow per share and higher liquidity. In terms of valuation, UNFI is the cheaper of the two stocks on an earnings, book value and sales basis, HAIN is more undervalued relative to its price target. Finally, HAIN has better sentiment signals based on short interest.