Turtle Beach Corporation (NASDAQ:HEAR) shares are up more than 924.83% this year and recently increased 4.21% or $0.75 to settle at $18.57. Builders FirstSource, Inc. (NASDAQ:BLDR), on the other hand, is down -12.94% year to date as of 05/16/2018. It currently trades at $18.97 and has returned -3.95% during the past week.
Turtle Beach Corporation (NASDAQ:HEAR) and Builders FirstSource, Inc. (NASDAQ:BLDR) are the two most active stocks in the Communication Equipment industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.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 HEAR to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, BLDR is expected to grow at a 17.40% annual rate. All else equal, HEAR’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 5.83% for Builders FirstSource, Inc. (BLDR). HEAR’s ROI is 21.30% while BLDR has a ROI of 12.10%. The interpretation is that HEAR’s business generates a higher return on investment than BLDR’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. HEAR’s free cash flow (“FCF”) per share for the trailing twelve months was +3.05. Comparatively, BLDR’s free cash flow per share was -1.70. On a percent-of-sales basis, HEAR’s free cash flow was 0.03% while BLDR converted -2.77% of its revenues into cash flow. This means that, for a given level of sales, HEAR is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. HEAR has a current ratio of 2.20 compared to 2.10 for BLDR. This means that HEAR can more easily cover its most immediate liabilities over the next twelve months.Valuation
HEAR trades at a forward P/E of 17.12, and a P/S of 0.57, compared to a forward P/E of 8.43, a P/B of 5.40, and a P/S of 0.32 for BLDR. HEAR 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
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”. HEAR is currently priced at a 178.41% to its one-year price target of 6.67. Comparatively, BLDR is -25.78% relative to its price target of 25.56. This suggests that BLDR is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HEAR has a beta of 0.50 and BLDR’s beta is 2.06. HEAR’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. HEAR has a short ratio of 0.44 compared to a short interest of 3.13 for BLDR. This implies that the market is currently less bearish on the outlook for HEAR.Summary
Turtle Beach Corporation (NASDAQ:HEAR) beats Builders FirstSource, Inc. (NASDAQ:BLDR) on a total of 11 of the 14 factors compared between the two stocks. HEAR is growing fastly, 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. Finally, HEAR has better sentiment signals based on short interest.