IAC/InterActiveCorp (NASDAQ:IAC) shares are up more than 17.56% this year and recently increased 2.43% or $3.41 to settle at $143.75. Redfin Corporation (NASDAQ:RDFN), on the other hand, is down -29.76% year to date as of 02/13/2018. It currently trades at $22.00 and has returned -0.14% during the past week.
IAC/InterActiveCorp (NASDAQ:IAC) and Redfin Corporation (NASDAQ:RDFN) are the two most active stocks in the Internet Information Providers 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 IAC to grow earnings at a 41.38% annual rate over the next 5 years.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. IAC’s ROI is 0.60% while RDFN has a ROI of 4.00%. The interpretation is that RDFN’s business generates a higher return on investment than IAC’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, IAC’s free cash flow was 0% while RDFN converted 0% of its revenues into cash flow. This means that, for a given level of sales, IAC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. IAC has a current ratio of 2.10 compared to 5.50 for RDFN. This means that RDFN can more easily cover its most immediate liabilities over the next twelve months. IAC’s debt-to-equity ratio is 0.68 versus a D/E of 0.00 for RDFN. IAC is therefore the more solvent of the two companies, and has lower financial risk.
IAC trades at a forward P/E of 20.26, a P/B of 4.78, and a P/S of 3.50, compared to a P/B of 5.54, and a P/S of 5.24 for RDFN. 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. IAC is currently priced at a -12.33% to its one-year price target of 163.97. Comparatively, RDFN is -13.52% relative to its price target of 25.44. This suggests that RDFN 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 1.70 for IAC and 2.40 for RDFN, which implies that analysts are more bullish on the outlook for RDFN.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. IAC has a short ratio of 2.50 compared to a short interest of 5.24 for RDFN. This implies that the market is currently less bearish on the outlook for IAC.
Redfin Corporation (NASDAQ:RDFN) beats IAC/InterActiveCorp (NASDAQ:IAC) on a total of 7 of the 14 factors compared between the two stocks. RDFN is growing fastly, has higher cash flow per share, higher liquidity and has lower financial risk. RDFN is more undervalued relative to its price target. Finally, LLNW has better sentiment signals based on short interest.