eBay Inc. (NASDAQ:EBAY) shares are up more than 6.49% this year and recently increased 0.73% or $0.29 to settle at $40.19. Pandora Media, Inc. (NYSE:P), on the other hand, is up 6.43% year to date as of 04/16/2018. It currently trades at $5.13 and has returned 8.23% during the past week.
eBay Inc. (NASDAQ:EBAY) and Pandora Media, Inc. (NYSE:P) are the two most active stocks in the Specialty Retail, Other industry 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect EBAY to grow earnings at a 11.99% annual rate over the next 5 years. Comparatively, P is expected to grow at a 32.20% annual rate. All else equal, P’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. eBay Inc. (EBAY) has an EBITDA margin of 47.05%. This suggests that EBAY underlying business is more profitable EBAY’s ROI is 11.50% while P has a ROI of -116.00%. The interpretation is that EBAY’s business generates a higher return on investment than P’s.Cash Flow
Cash is king when it comes to investing. EBAY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.77. Comparatively, P’s free cash flow per share was +0.00. On a percent-of-sales basis, EBAY’s free cash flow was 8% while P converted 0% of its revenues into cash flow. This means that, for a given level of sales, EBAY is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. EBAY has a current ratio of 2.20 compared to 4.00 for P. This means that P can more easily cover its most immediate liabilities over the next twelve months. EBAY’s debt-to-equity ratio is 1.24 versus a D/E of 1.79 for P. P is therefore the more solvent of the two companies, and has lower financial risk.Valuation
EBAY trades at a forward P/E of 15.40, a P/B of 5.15, and a P/S of 4.32, compared to a P/B of 8.41, and a P/S of 0.88 for P. EBAY is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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 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. EBAY is currently priced at a -15.44% to its one-year price target of 47.53. Comparatively, P is -20.09% relative to its price target of 6.42. This suggests that P is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. EBAY has a beta of 1.25 and P’s beta is -0.59. P’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. EBAY has a short ratio of 2.50 compared to a short interest of 7.08 for P. This implies that the market is currently less bearish on the outlook for EBAY.Summary
eBay Inc. (NASDAQ:EBAY) beats Pandora Media, Inc. (NYSE:P) on a total of 8 of the 14 factors compared between the two stocks. EBAY is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, EBAY has better sentiment signals based on short interest.