Zynga Inc. (NASDAQ:ZNGA) shares are down more than -12.75% this year and recently increased 1.16% or $0.04 to settle at $3.49. Regal Entertainment Group (NYSE:RGC), on the other hand, is up 0.43% year to date as of 02/14/2018. It currently trades at $23.11 and has returned 0.04% during the past week.
Zynga Inc. (NASDAQ:ZNGA) and Regal Entertainment Group (NYSE:RGC) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ZNGA to grow earnings at a 30.00% annual rate over the next 5 years. Comparatively, RGC is expected to grow at a 10.00% annual rate. All else equal, ZNGA’s higher growth rate would imply a greater potential for capital appreciation.
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. EBITDA margin of 21.97% for Regal Entertainment Group (RGC). ZNGA’s ROI is -7.40% while RGC has a ROI of 15.20%. The interpretation is that RGC’s business generates a higher return on investment than ZNGA’s.
The value of a stock is simply the present value of its future free cash flows. ZNGA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.03. Comparatively, RGC’s free cash flow per share was -0.37. On a percent-of-sales basis, ZNGA’s free cash flow was 0% while RGC converted -1.82% of its revenues into cash flow. This means that, for a given level of sales, ZNGA 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. ZNGA has a current ratio of 3.70 compared to 0.80 for RGC. This means that ZNGA can more easily cover its most immediate liabilities over the next twelve months.
ZNGA trades at a forward P/E of 19.07, a P/B of 1.86, and a P/S of 3.72, compared to a forward P/E of 21.82, and a P/S of 1.16 for RGC. ZNGA 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. ZNGA is currently priced at a -21.4% to its one-year price target of 4.44. Comparatively, RGC is 1.23% relative to its price target of 22.83. This suggests that ZNGA 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 2.40 for ZNGA and 3.10 for RGC, which implies that analysts are more bullish on the outlook for RGC.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ZNGA has a beta of 0.47 and RGC’s beta is 0.86. ZNGA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.ZNGA has a short ratio of 1.37 compared to a short interest of 2.34 for RGC. This implies that the market is currently less bearish on the outlook for ZNGA.
Zynga Inc. (NASDAQ:ZNGA) beats Regal Entertainment Group (NYSE:RGC) on a total of 9 of the 14 factors compared between the two stocks. ZNGA is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. ZNGA is more undervalued relative to its price target. Finally, ZNGA has better sentiment signals based on short interest.