Vonage Holdings Corp. (NYSE:VG) shares are up more than 7.47% this year and recently decreased -0.55% or -$0.06 to settle at $10.93. First Horizon National Corporation (NYSE:FHN), on the other hand, is down -0.15% year to date as of 03/13/2018. It currently trades at $19.96 and has returned -0.05% during the past week.
Vonage Holdings Corp. (NYSE:VG) and First Horizon National Corporation (NYSE:FHN) are the two most active stocks in the market 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 VG to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, FHN is expected to grow at a 7.00% annual rate. All else equal, VG’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., compared to an EBITDA margin of 36.98% for First Horizon National Corporation (FHN). VG’s ROI is 7.20% while FHN has a ROI of 14.70%. The interpretation is that FHN’s business generates a higher return on investment than VG’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. VG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, FHN’s free cash flow per share was -. On a percent-of-sales basis, VG’s free cash flow was 3.88% while FHN converted 0% of its revenues into cash flow. This means that, for a given level of sales, VG is able to generate more free cash flow for investors.
Liquidity and Financial Risk
VG’s debt-to-equity ratio is 0.49 versus a D/E of 0.29 for FHN. VG is therefore the more solvent of the two companies, and has lower financial risk.
VG trades at a forward P/E of 27.26, a P/B of 5.31, and a P/S of 2.47, compared to a forward P/E of 11.73, a P/B of 1.26, and a P/S of 6.47 for FHN. VG is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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 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. VG is currently priced at a -9.89% to its one-year price target of 12.13. Comparatively, FHN is -11.92% relative to its price target of 22.66. This suggests that FHN 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 VG and 2.40 for FHN, which implies that analysts are more bullish on the outlook for FHN.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. VG has a beta of 0.07 and FHN’s beta is 1.01. VG’s shares are therefore the less volatile of the two stocks.
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. VG has a short ratio of 2.85 compared to a short interest of 6.72 for FHN. This implies that the market is currently less bearish on the outlook for VG.
Vonage Holdings Corp. (NYSE:VG) beats First Horizon National Corporation (NYSE:FHN) on a total of 8 of the 14 factors compared between the two stocks. VG is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, VG has better sentiment signals based on short interest.