Okta, Inc. (NASDAQ:OKTA) shares are up more than 5.43% this year and recently increased 1.62% or $0.43 to settle at $27.00. PTC Inc. (NASDAQ:PTC), on the other hand, is up 8.49% year to date as of 01/12/2018. It currently trades at $65.93 and has returned 3.58% during the past week.
Okta, Inc. (NASDAQ:OKTA) and PTC Inc. (NASDAQ:PTC) are the two most active stocks in the Technical & System Software 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.
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, PTC is expected to grow at a 30.55% annual rate. All else equal, PTC’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. EBITDA margin of 10.97% for PTC Inc. (PTC). OKTA’s ROI is 34.30% while PTC has a ROI of 3.00%. The interpretation is that OKTA’s business generates a higher return on investment than PTC’s.
The value of a stock is simply the present value of its future free cash flows. OKTA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, PTC’s free cash flow per share was +0.23. On a percent-of-sales basis, OKTA’s free cash flow was -0.01% while PTC converted 2.3% of its revenues into cash flow. This means that, for a given level of sales, PTC 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. OKTA has a current ratio of 1.70 compared to 1.00 for PTC. This means that OKTA can more easily cover its most immediate liabilities over the next twelve months. OKTA’s debt-to-equity ratio is 0.00 versus a D/E of 0.80 for PTC. PTC is therefore the more solvent of the two companies, and has lower financial risk.
OKTA trades at a P/B of 16.46, and a P/S of 11.92, compared to a forward P/E of 33.62, a P/B of 8.61, and a P/S of 6.51 for PTC. OKTA is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. OKTA is currently priced at a -17.25% to its one-year price target of 32.63. Comparatively, PTC is -2.12% relative to its price target of 67.36. This suggests that OKTA 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 2.20 for OKTA and 2.10 for PTC, which implies that analysts are more bullish on the outlook for OKTA.
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. OKTA has a short ratio of 2.58 compared to a short interest of 4.10 for PTC. This implies that the market is currently less bearish on the outlook for OKTA.
PTC Inc. (NASDAQ:PTC) beats Okta, Inc. (NASDAQ:OKTA) on a total of 7 of the 14 factors compared between the two stocks. PTC generates a higher return on investment, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PTC is the cheaper of the two stocks on book value and sales basis, Finally, JEC has better sentiment signals based on short interest.