Earnings

A Comparison of Top Movers: NRG Energy, Inc. (NRG), Fitbit, Inc. (FIT)

The shares of NRG Energy, Inc. have increased by more than 22.12% this year alone. The shares recently went down by -0.37% or -$0.13 and now trades at $34.78. The shares of Fitbit, Inc. (NYSE:FIT), has slumped by -9.11% year to date as of 05/14/2018. The shares currently trade at $5.19 and have been able to report a change of 4.22% over the past one week.

The stock of NRG Energy, Inc. and Fitbit, Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 77.47% versus 1.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that NRG will grow it’s earning at a 77.47% annual rate in the next 5 years. This is in contrast to FIT which will have a positive growth at a 1.00% annual rate. This means that the higher growth rate of NRG implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. NRG has an EBITDA margin of 7.63%, this implies that the underlying business of NRG is more profitable. The ROI of NRG is 7.30% while that of FIT is -28.90%. These figures suggest that NRG ventures generate a higher ROI than that of FIT.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, NRG’s free cash flow per share is a negative -0.09, while that of FIT is also a negative -0.13.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for NRG is 1.20 and that of FIT is 2.10. This implies that it is easier for NRG to cover its immediate obligations over the next 12 months than FIT.

Valuation

NRG currently trades at a forward P/E of 11.59, and a P/S of 1.04 while FIT trades at a P/B of 1.63, and a P/S of 0.82. This means that looking at the earnings, book values and sales basis, NRG is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of NRG is currently at a -4.71% to its one-year price target of 36.50. Looking at its rival pricing, FIT is at a -14.36% relative to its price target of 6.06.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), NRG is given a 1.80 while 3.00 placed for FIT. This means that analysts are more bullish on the outlook for FIT stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for NRG is 2.41 while that of FIT is just 6.61. This means that analysts are more bullish on the forecast for NRG stock.

Conclusion

The stock of NRG Energy, Inc. defeats that of Fitbit, Inc. when the two are compared, with NRG taking 7 out of the total factors that were been considered. NRG happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, NRG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for NRG is better on when it is viewed on short interest.

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