Macy’s, Inc. (NYSE:M) shares are up more than 14.85% this year and recently decreased -1.26% or -$0.37 to settle at $28.93. Expedia, Inc. (NASDAQ:EXPE), on the other hand, is down -7.90% year to date as of 03/20/2018. It currently trades at $110.31 and has returned 0.71% during the past week.
Macy’s, Inc. (NYSE:M) and Expedia, Inc. (NASDAQ:EXPE) 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 M to grow earnings at a 18.64% annual rate over the next 5 years. Comparatively, EXPE is expected to grow at a 15.20% annual rate. All else equal, M’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 14.79% for Expedia, Inc. (EXPE). M’s ROI is 8.70% while EXPE has a ROI of 6.40%. The interpretation is that M’s business generates a higher return on investment than EXPE’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. M’s free cash flow (“FCF”) per share for the trailing twelve months was +4.27. Comparatively, EXPE’s free cash flow per share was -2.26. On a percent-of-sales basis, M’s free cash flow was 5.24% while EXPE converted -3.41% of its revenues into cash flow. This means that, for a given level of sales, M 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. M has a current ratio of 1.30 compared to 0.70 for EXPE. This means that M can more easily cover its most immediate liabilities over the next twelve months. M’s debt-to-equity ratio is 1.49 versus a D/E of 0.94 for EXPE. M is therefore the more solvent of the two companies, and has lower financial risk.
M trades at a forward P/E of 8.99, a P/B of 2.09, and a P/S of 0.35, compared to a forward P/E of 19.66, a P/B of 3.71, and a P/S of 1.65 for EXPE. M 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. M is currently priced at a -2.63% to its one-year price target of 29.71. Comparatively, EXPE is -17.59% relative to its price target of 133.85. This suggests that EXPE 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 2.80 for M and 2.10 for EXPE, which implies that analysts are more bullish on the outlook for M.
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. M has a beta of 0.79 and EXPE’s beta is 1.11. M’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. M has a short ratio of 3.82 compared to a short interest of 3.69 for EXPE. This implies that the market is currently less bearish on the outlook for EXPE.
Macy’s, Inc. (NYSE:M) beats Expedia, Inc. (NASDAQ:EXPE) on a total of 9 of the 14 factors compared between the two stocks. M is growing fastly, 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, M is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, FLEX has better sentiment signals based on short interest.