Fidelity National Information Services, Inc. (NYSE:FIS) shares are up more than 3.65% this year and recently decreased -3.04% or -$3.06 to settle at $97.52. Entegris, Inc. (NASDAQ:ENTG), on the other hand, is up 20.53% year to date as of 03/22/2018. It currently trades at $36.70 and has returned 1.52% during the past week.
Fidelity National Information Services, Inc. (NYSE:FIS) and Entegris, Inc. (NASDAQ:ENTG) 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 FIS to grow earnings at a 12.66% annual rate over the next 5 years. Comparatively, ENTG is expected to grow at a 16.07% annual rate. All else equal, ENTG’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 23.94% for Entegris, Inc. (ENTG). FIS’s ROI is 5.30% while ENTG has a ROI of 8.50%. The interpretation is that ENTG’s business generates a higher return on investment than FIS’s.
The value of a stock is simply the present value of its future free cash flows. FIS’s free cash flow (“FCF”) per share for the trailing twelve months was +1.54. Comparatively, ENTG’s free cash flow per share was +0.36. On a percent-of-sales basis, FIS’s free cash flow was 5.59% while ENTG converted 3.78% of its revenues into cash flow. This means that, for a given level of sales, FIS 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. FIS has a current ratio of 0.90 compared to 3.60 for ENTG. This means that ENTG can more easily cover its most immediate liabilities over the next twelve months. FIS’s debt-to-equity ratio is 0.81 versus a D/E of 0.68 for ENTG. FIS is therefore the more solvent of the two companies, and has lower financial risk.
FIS trades at a forward P/E of 16.86, a P/B of 2.97, and a P/S of 3.52, compared to a forward P/E of 18.31, a P/B of 5.24, and a P/S of 3.86 for ENTG. FIS 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FIS is currently priced at a -10.73% to its one-year price target of 109.24. Comparatively, ENTG is -2.26% relative to its price target of 37.55. This suggests that FIS 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 1.80 for FIS and 1.80 for ENTG, which implies that analysts are equally bullish on their outlook for the two stocks.
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. FIS has a beta of 0.93 and ENTG’s beta is 1.45. FIS’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. FIS has a short ratio of 2.10 compared to a short interest of 3.19 for ENTG. This implies that the market is currently less bearish on the outlook for FIS.
Fidelity National Information Services, Inc. (NYSE:FIS) beats Entegris, Inc. (NASDAQ:ENTG) on a total of 9 of the 14 factors compared between the two stocks. FIS is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, FIS is the cheaper of the two stocks on an earnings, book value and sales basis, FIS is more undervalued relative to its price target. Finally, FIS has better sentiment signals based on short interest.