Earnings

Critical Comparison: Exact Sciences Corporation (EXAS) vs. Realogy Holdings Corp. (RLGY)

Exact Sciences Corporation (NASDAQ:EXAS) shares are up more than 0.02% this year and recently decreased -1.20% or -$0.64 to settle at $52.55. Realogy Holdings Corp. (NYSE:RLGY), on the other hand, is up 0.83% year to date as of 03/13/2018. It currently trades at $26.72 and has returned 5.65% during the past week.

Exact Sciences Corporation (NASDAQ:EXAS) and Realogy Holdings Corp. (NYSE:RLGY) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

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 EXAS to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, RLGY is expected to grow at a 10.70% annual rate. All else equal, EXAS’s higher growth rate would imply a greater potential for capital appreciation.



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 EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 11.83% for Realogy Holdings Corp. (RLGY). EXAS’s ROI is -46.30% while RLGY has a ROI of 4.30%. The interpretation is that RLGY’s business generates a higher return on investment than EXAS’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. EXAS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.18. Comparatively, RLGY’s free cash flow per share was +1.63. On a percent-of-sales basis, EXAS’s free cash flow was -0.01% while RLGY converted 3.47% of its revenues into cash flow. This means that, for a given level of sales, RLGY 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. EXAS has a current ratio of 7.20 compared to 0.80 for RLGY. This means that EXAS can more easily cover its most immediate liabilities over the next twelve months. EXAS’s debt-to-equity ratio is 0.01 versus a D/E of 1.35 for RLGY. RLGY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EXAS trades at a P/B of 12.11, and a P/S of 23.71, compared to a forward P/E of 12.12, a P/B of 1.36, and a P/S of 0.58 for RLGY. EXAS 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. EXAS is currently priced at a -8.39% to its one-year price target of 57.36. Comparatively, RLGY is -15.97% relative to its price target of 31.80. This suggests that RLGY 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 EXAS and 2.20 for RLGY, which implies that analysts are more bullish on the outlook for RLGY.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. EXAS has a beta of 0.78 and RLGY’s beta is 1.27. EXAS’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.EXAS has a short ratio of 5.02 compared to a short interest of 9.20 for RLGY. This implies that the market is currently less bearish on the outlook for EXAS.

Summary

Realogy Holdings Corp. (NYSE:RLGY) beats Exact Sciences Corporation (NASDAQ:EXAS) on a total of 7 of the 14 factors compared between the two stocks. RLGY is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, RLGY is the cheaper of the two stocks on book value and sales basis, RLGY is more undervalued relative to its price target. Finally, NVO has better sentiment signals based on short interest.

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