Finance

Critical Comparison: Boot Barn Holdings, Inc. (BOOT) vs. the Rubicon Project, Inc. (RUBI)

Boot Barn Holdings, Inc. (NYSE:BOOT) shares are up more than 47.62% this year and recently increased 11.66% or $2.56 to settle at $24.52. the Rubicon Project, Inc. (NYSE:RUBI), on the other hand, is up 27.27% year to date as of 05/16/2018. It currently trades at $2.38 and has returned 7.69% during the past week.

Boot Barn Holdings, Inc. (NYSE:BOOT) and the Rubicon Project, Inc. (NYSE:RUBI) are the two most active stocks in the Apparel Stores 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

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BOOT to grow earnings at a 25.00% annual rate over the next 5 years.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Boot Barn Holdings, Inc. (BOOT) has an EBITDA margin of 17.85%. This suggests that BOOT underlying business is more profitable BOOT’s ROI is 7.00% while RUBI has a ROI of -94.70%. The interpretation is that BOOT’s business generates a higher return on investment than RUBI’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BOOT’s free cash flow (“FCF”) per share for the trailing twelve months was +2.39. Comparatively, RUBI’s free cash flow per share was -0.20. On a percent-of-sales basis, BOOT’s free cash flow was 0.01% while RUBI converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, BOOT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. BOOT has a current ratio of 1.50 compared to 1.40 for RUBI. This means that BOOT can more easily cover its most immediate liabilities over the next twelve months. BOOT’s debt-to-equity ratio is 0.93 versus a D/E of 0.00 for RUBI. BOOT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BOOT trades at a forward P/E of 24.67, a P/B of 3.20, and a P/S of 0.99, compared to a P/B of 0.84, and a P/S of 0.94 for RUBI. BOOT 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. BOOT is currently priced at a 9.27% to its one-year price target of 22.44. Comparatively, RUBI is -32% relative to its price target of 3.50. This suggests that RUBI 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. BOOT has a beta of 1.54 and RUBI’s beta is 1.11. RUBI’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. BOOT has a short ratio of 8.81 compared to a short interest of 4.71 for RUBI. This implies that the market is currently less bearish on the outlook for RUBI.

Summary

the Rubicon Project, Inc. (NYSE:RUBI) beats Boot Barn Holdings, Inc. (NYSE:BOOT) on a total of 7 of the 14 factors compared between the two stocks. RUBI is growing fastly. In terms of valuation, RUBI is the cheaper of the two stocks on an earnings, book value and sales basis, RUBI is more undervalued relative to its price target. Finally, RUBI has better sentiment signals based on short interest.

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