The Finish Line, Inc. (NASDAQ:FINL) shares are down more than -28.70% this year and recently decreased -1.80% or -$0.19 to settle at $10.36. DaVita Inc. (NYSE:DVA), on the other hand, is down -2.85% year to date as of 03/13/2018. It currently trades at $70.19 and has returned -2.60% during the past week.
The Finish Line, Inc. (NASDAQ:FINL) and DaVita Inc. (NYSE:DVA) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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 FINL to grow earnings at a -7.10% annual rate over the next 5 years. Comparatively, DVA is expected to grow at a 23.00% annual rate. All else equal, DVA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 2.88% for DaVita Inc. (DVA). FINL’s ROI is 7.80% while DVA has a ROI of 8.80%. The interpretation is that DVA’s business generates a higher return on investment than FINL’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FINL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.86. Comparatively, DVA’s free cash flow per share was +0.42. On a percent-of-sales basis, FINL’s free cash flow was -1.88% while DVA converted 0.7% of its revenues into cash flow. This means that, for a given level of sales, DVA 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. FINL has a current ratio of 2.10 compared to 2.90 for DVA. This means that DVA can more easily cover its most immediate liabilities over the next twelve months. FINL’s debt-to-equity ratio is 0.00 versus a D/E of 1.99 for DVA. DVA is therefore the more solvent of the two companies, and has lower financial risk.
FINL trades at a forward P/E of 13.44, a P/B of 0.95, and a P/S of 0.22, compared to a forward P/E of 13.58, a P/B of 2.82, and a P/S of 1.18 for DVA. FINL is the cheaper 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 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. FINL is currently priced at a -18.23% to its one-year price target of 12.67. Comparatively, DVA is -14.92% relative to its price target of 82.50. This suggests that FINL 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 3.10 for FINL and 2.00 for DVA, which implies that analysts are more bullish on the outlook for FINL.
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. FINL has a beta of 1.12 and DVA’s beta is 1.06. DVA’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. FINL has a short ratio of 6.54 compared to a short interest of 2.83 for DVA. This implies that the market is currently less bearish on the outlook for DVA.
DaVita Inc. (NYSE:DVA) beats The Finish Line, Inc. (NASDAQ:FINL) on a total of 8 of the 14 factors compared between the two stocks. DVA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, FINL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, DVA has better sentiment signals based on short interest.