Yandex N.V. (NASDAQ:YNDX) shares are up more than 2.69% this year and recently increased 1.97% or $0.65 to settle at $33.63. Banco Santander, S.A. (NYSE:SAN), on the other hand, is up 2.60% year to date as of 04/16/2018. It currently trades at $6.71 and has returned 2.44% during the past week.
Yandex N.V. (NASDAQ:YNDX) and Banco Santander, S.A. (NYSE:SAN) are the two most active stocks in the Internet Information Providers 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
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect YNDX to grow earnings at a 0.50% annual rate over the next 5 years. Comparatively, SAN is expected to grow at a 10.16% annual rate. All else equal, SAN’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Yandex N.V. (YNDX) has an EBITDA margin of 28.07%. This suggests that YNDX underlying business is more profitable YNDX’s ROI is 8.10% while SAN has a ROI of 6.80%. The interpretation is that YNDX’s business generates a higher return on investment than SAN’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. YNDX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, SAN’s free cash flow per share was -. On a percent-of-sales basis, YNDX’s free cash flow was 5.2% while SAN converted 0% of its revenues into cash flow. This means that, for a given level of sales, YNDX is able to generate more free cash flow for investors.Liquidity and Financial Risk
YNDX’s debt-to-equity ratio is 0.22 versus a D/E of 2.31 for SAN. SAN is therefore the more solvent of the two companies, and has lower financial risk.
YNDX trades at a forward P/E of 22.13, a P/B of 8.20, and a P/S of 7.27, compared to a forward P/E of 14.34, a P/B of 0.91, and a P/S of 1.56 for SAN. YNDX is the expensive 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. YNDX is currently priced at a -20.74% to its one-year price target of 42.43. Comparatively, SAN is -11.01% relative to its price target of 7.54. This suggests that YNDX is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. YNDX has a beta of 2.67 and SAN’s beta is 1.58. SAN’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. YNDX has a short ratio of 0.97 compared to a short interest of 1.26 for SAN. This implies that the market is currently less bearish on the outlook for YNDX.Summary
Yandex N.V. (NASDAQ:YNDX) beats Banco Santander, S.A. (NYSE:SAN) on a total of 9 of the 14 factors compared between the two stocks. YNDX is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. YNDX is more undervalued relative to its price target. Finally, YNDX has better sentiment signals based on short interest.