Match Group, Inc. (NASDAQ:MTCH) shares are up more than 26.48% this year and recently increased 4.24% or $1.61 to settle at $39.60. Zillow Group, Inc. (NASDAQ:Z), on the other hand, is up 9.29% year to date as of 02/13/2018. It currently trades at $44.72 and has returned 2.78% during the past week.
Match Group, Inc. (NASDAQ:MTCH) and Zillow Group, Inc. (NASDAQ:Z) are the two most active stocks in the Internet Information Providers industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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. Analysts expect MTCH to grow earnings at a 16.38% annual rate over the next 5 years.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Match Group, Inc. (MTCH) has an EBITDA margin of 24.4%. This suggests that MTCH underlying business is more profitable
If there’s one thing investors care more about than earnings, it’s cash flow. MTCH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.31. Comparatively, Z’s free cash flow per share was +0.35. On a percent-of-sales basis, MTCH’s free cash flow was 6.37% while Z converted 6.14% of its revenues into cash flow. This means that, for a given level of sales, MTCH is able to generate more free cash flow for investors.
MTCH trades at a forward P/E of 27.44, a P/B of 20.31, and a P/S of 7.65, compared to a forward P/E of 48.09, a P/B of 3.18, and a P/S of 5.10 for Z. MTCH 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
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. MTCH is currently priced at a 4.21% to its one-year price target of 38.00. Comparatively, Z is -3.83% relative to its price target of 46.50. This suggests that Z 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 2.00 for MTCH and 2.40 for Z, which implies that analysts are more bullish on the outlook for Z.
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. MTCH has a short ratio of 14.98 compared to a short interest of 19.21 for Z. This implies that the market is currently less bearish on the outlook for MTCH.
Match Group, Inc. (NASDAQ:MTCH) beats Zillow Group, Inc. (NASDAQ:Z) on a total of 8 of the 14 factors compared between the two stocks. MTCH is growing fastly, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. Finally, MTCH has better sentiment signals based on short interest.