Finance

Forward Industries, Inc. (FORD) and Drive Shack Inc. (DS) Go Head-to-head

Forward Industries, Inc. (NASDAQ:FORD) shares are up more than 28.46% this year and recently increased 9.72% or $0.14 to settle at $1.58. Drive Shack Inc. (NYSE:DS), on the other hand, is up 7.23% year to date as of 05/16/2018. It currently trades at $5.93 and has returned 12.95% during the past week.

Forward Industries, Inc. (NASDAQ:FORD) and Drive Shack Inc. (NYSE:DS) are the two most active stocks in the Textile – Apparel Footwear & Accessories 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. Comparatively, DS is expected to grow at a 8.10% annual rate. All else equal, DS’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. Forward Industries, Inc. (FORD) has an EBITDA margin of 2.03%. This suggests that FORD underlying business is more profitable FORD’s ROI is 6.70% while DS has a ROI of -16.50%. The interpretation is that FORD’s business generates a higher return on investment than DS’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. FORD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, DS’s free cash flow per share was -0.48. On a percent-of-sales basis, FORD’s free cash flow was 0.01% while DS converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, FORD is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. FORD has a current ratio of 2.90 compared to 3.70 for DS. This means that DS can more easily cover its most immediate liabilities over the next twelve months. FORD’s debt-to-equity ratio is 0.00 versus a D/E of 1.74 for DS. DS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FORD trades at a P/B of 1.55, and a P/S of 0.59, compared to a P/B of 4.09, and a P/S of 1.33 for DS. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. FORD is currently priced at a -30.7% to its one-year price target of 2.28. Comparatively, DS is 18.6% relative to its price target of 5.00. This suggests that FORD 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. FORD has a beta of -0.19 and DS’s beta is 1.79. FORD’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. FORD has a short ratio of 1.48 compared to a short interest of 6.53 for DS. This implies that the market is currently less bearish on the outlook for FORD.

Summary

Forward Industries, Inc. (NASDAQ:FORD) beats Drive Shack Inc. (NYSE:DS) on a total of 11 of the 14 factors compared between the two stocks. FORD is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, FORD is the cheaper of the two stocks on book value and sales basis, FORD is more undervalued relative to its price target. Finally, FORD has better sentiment signals based on short interest.

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