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Critical Comparison: VeriFone Systems, Inc. (PAY) vs. Bloomin’ Brands, Inc. (BLMN)

Bloomin’ Brands, Inc. (NASDAQ:BLMN), on the other hand, is up 9.18% year to date as of 04/13/2018. It currently trades at $23.30 and has returned -5.63% during the past week.

VeriFone Systems, Inc. (NYSE:PAY) and Bloomin’ Brands, Inc. (NASDAQ:BLMN) are the two most active stocks in the Business Equipment industry 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.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect PAY to grow earnings at a 16.34% annual rate over the next 5 years. Comparatively, BLMN is expected to grow at a 8.40% annual rate. All else equal, PAY’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 9.06% for Bloomin’ Brands, Inc. (BLMN). PAY’s ROI is -9.10% while BLMN has a ROI of 11.30%. The interpretation is that BLMN’s business generates a higher return on investment than PAY’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. PAY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.34. Comparatively, BLMN’s free cash flow per share was +1.08. On a percent-of-sales basis, PAY’s free cash flow was 2% while BLMN converted 2.38% of its revenues into cash flow. This means that, for a given level of sales, BLMN is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. PAY has a current ratio of 1.30 compared to 0.40 for BLMN. This means that PAY can more easily cover its most immediate liabilities over the next twelve months. PAY’s debt-to-equity ratio is 1.05 versus a D/E of 28.97 for BLMN. BLMN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PAY trades at a forward P/E of 13.15, a P/B of 3.18, and a P/S of 1.36, compared to a forward P/E of 15.43, a P/B of 55.48, and a P/S of 0.51 for BLMN. 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”. PAY is currently priced at a 9.16% to its one-year price target of 20.86. Comparatively, BLMN is -2.51% relative to its price target of 23.90. This suggests that BLMN is the better investment over the next year.

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. PAY has a beta of 1.75 and BLMN’s beta is 0.34. BLMN’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. PAY has a short ratio of 5.19 compared to a short interest of 5.64 for BLMN. This implies that the market is currently less bearish on the outlook for PAY.

Summary

Bloomin’ Brands, Inc. (NASDAQ:BLMN) beats VeriFone Systems, Inc. (NYSE:PAY) on a total of 7 of the 14 factors compared between the two stocks. BLMN is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. BLMN is more undervalued relative to its price target. Finally, LUK has better sentiment signals based on short interest.

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