Lululemon Athletica Inc. (NASDAQ:LULU) shares are up more than 29.34% this year and recently increased 2.73% or $2.7 to settle at $101.65. One Horizon Group, Inc. (NASDAQ:OHGI), on the other hand, is down -50.84% year to date as of 05/16/2018. It currently trades at $0.69 and has returned -21.78% during the past week.
Lululemon Athletica Inc. (NASDAQ:LULU) and One Horizon Group, Inc. (NASDAQ:OHGI) are the two most active stocks in the Textile – Apparel Clothing 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect LULU to grow earnings at a 14.71% annual rate over the next 5 years.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Lululemon Athletica Inc. (LULU) has an EBITDA margin of 21.45%. This suggests that LULU underlying business is more profitableCash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. LULU’s free cash flow (“FCF”) per share for the trailing twelve months was +2.26. Comparatively, OHGI’s free cash flow per share was -0.01. On a percent-of-sales basis, LULU’s free cash flow was 11.55% while OHGI converted -0.05% of its revenues into cash flow. This means that, for a given level of sales, LULU 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. LULU has a current ratio of 4.90 compared to 2.60 for OHGI. This means that LULU can more easily cover its most immediate liabilities over the next twelve months. LULU’s debt-to-equity ratio is 0.00 versus a D/E of 0.14 for OHGI. OHGI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
LULU trades at a forward P/E of 28.92, a P/B of 8.61, and a P/S of 5.23, compared to a P/B of 2.87, and a P/S of 38.91 for OHGI. LULU is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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”. LULU is currently priced at a 11.79% to its one-year price target of 90.93. Comparatively, OHGI is -86.28% relative to its price target of 5.03. This suggests that OHGI 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. LULU has a beta of 0.13 and OHGI’s beta is 2.89. LULU’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. LULU has a short ratio of 2.41 compared to a short interest of 0.49 for OHGI. This implies that the market is currently less bearish on the outlook for OHGI.Summary
Lululemon Athletica Inc. (NASDAQ:LULU) beats One Horizon Group, Inc. (NASDAQ:OHGI) on a total of 9 of the 14 factors compared between the two stocks. LULU 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, TELL has better sentiment signals based on short interest.