NVIDIA Corporation (NASDAQ:NVDA) shares are up more than 24.76% this year and recently increased 3.78% or $8.79 to settle at $241.42. First Data Corporation (NYSE:FDC), on the other hand, is down -5.21% year to date as of 02/14/2018. It currently trades at $15.84 and has returned -4.46% during the past week.
NVIDIA Corporation (NASDAQ:NVDA) and First Data Corporation (NYSE:FDC) are the two most active stocks in the market 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect NVDA to grow earnings at a 16.22% annual rate over the next 5 years. Comparatively, FDC is expected to grow at a 9.32% annual rate. All else equal, NVDA’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 5.86% for First Data Corporation (FDC). NVDA’s ROI is 19.80% while FDC has a ROI of 7.40%. The interpretation is that NVDA’s business generates a higher return on investment than FDC’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. NVDA’s free cash flow (“FCF”) per share for the trailing twelve months was +1.50. Comparatively, FDC’s free cash flow per share was +0.54. On a percent-of-sales basis, NVDA’s free cash flow was 9.36% while FDC converted 4.31% of its revenues into cash flow. This means that, for a given level of sales, NVDA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. NVDA has a current ratio of 8.30 compared to 1.00 for FDC. This means that NVDA can more easily cover its most immediate liabilities over the next twelve months. NVDA’s debt-to-equity ratio is 0.32 versus a D/E of 8.89 for FDC. FDC is therefore the more solvent of the two companies, and has lower financial risk.
NVDA trades at a forward P/E of 33.96, a P/B of 22.93, and a P/S of 16.22, compared to a forward P/E of 10.52, a P/B of 6.92, and a P/S of 1.24 for FDC. NVDA is the expensive 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. NVDA is currently priced at a 8.95% to its one-year price target of 221.58. Comparatively, FDC is -24.86% relative to its price target of 21.08. This suggests that FDC 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 2.30 for NVDA and 1.80 for FDC, which implies that analysts are more bullish on the outlook for NVDA.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. NVDA has a short ratio of 1.03 compared to a short interest of 3.54 for FDC. This implies that the market is currently less bearish on the outlook for NVDA.
NVIDIA Corporation (NASDAQ:NVDA) beats First Data Corporation (NYSE:FDC) on a total of 8 of the 14 factors compared between the two stocks. NVDA is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, NVDA has better sentiment signals based on short interest.