DISH Network Corporation (NASDAQ:DISH) shares are down more than -30.93% this year and recently increased 3.09% or $0.99 to settle at $32.98. ACI Worldwide, Inc. (NASDAQ:ACIW), on the other hand, is up 2.60% year to date as of 05/16/2018. It currently trades at $23.26 and has returned -2.64% during the past week.
DISH Network Corporation (NASDAQ:DISH) and ACI Worldwide, Inc. (NASDAQ:ACIW) are the two most active stocks in the CATV Systems industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity 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 DISH to grow earnings at a -8.20% annual rate over the next 5 years. Comparatively, ACIW is expected to grow at a 12.00% annual rate. All else equal, ACIW’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 16.54% for ACI Worldwide, Inc. (ACIW). DISH’s ROI is 3.80% while ACIW has a ROI of 5.70%. The interpretation is that ACIW’s business generates a higher return on investment than DISH’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. DISH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.74. Comparatively, ACIW’s free cash flow per share was +0.34. On a percent-of-sales basis, DISH’s free cash flow was 2.4% while ACIW converted 3.87% of its revenues into cash flow. This means that, for a given level of sales, ACIW is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. DISH has a current ratio of 0.70 compared to 1.60 for ACIW. This means that ACIW can more easily cover its most immediate liabilities over the next twelve months. DISH’s debt-to-equity ratio is 2.21 versus a D/E of 0.69 for ACIW. DISH is therefore the more solvent of the two companies, and has lower financial risk.Valuation
DISH trades at a forward P/E of 14.96, a P/B of 2.10, and a P/S of 1.08, compared to a forward P/E of 22.80, a P/B of 2.75, and a P/S of 2.86 for ACIW. DISH is the cheaper 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
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. DISH is currently priced at a -48.65% to its one-year price target of 64.22. Comparatively, ACIW is -17.52% relative to its price target of 28.20. This suggests that DISH is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. DISH has a beta of 1.11 and ACIW’s beta is 1.14. DISH’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. DISH has a short ratio of 4.41 compared to a short interest of 9.02 for ACIW. This implies that the market is currently less bearish on the outlook for DISH.Summary
DISH Network Corporation (NASDAQ:DISH) beats ACI Worldwide, Inc. (NASDAQ:ACIW) on a total of 8 of the 14 factors compared between the two stocks. DISH is more profitable and has higher cash flow per share. In terms of valuation, DISH is the cheaper of the two stocks on an earnings, book value and sales basis, DISH is more undervalued relative to its price target. Finally, DISH has better sentiment signals based on short interest.