Finance

Comparing Snap Inc. (SNAP) and Windstream Holdings, Inc. (WIN)

Snap Inc. (NYSE:SNAP) shares are down more than -8.15% this year and recently increased 1.90% or $0.25 to settle at $13.42. Windstream Holdings, Inc. (NASDAQ:WIN), on the other hand, is down -32.32% year to date as of 06/12/2018. It currently trades at $6.26 and has returned 7.01% during the past week.

Snap Inc. (NYSE:SNAP) and Windstream Holdings, Inc. (NASDAQ:WIN) are the two most active stocks in the Internet Software & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 SNAP to grow earnings at a -6.96% annual rate over the next 5 years.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. SNAP’s ROI is -102.10% while WIN has a ROI of -11.20%. The interpretation is that WIN’s business generates a higher return on investment than SNAP’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. SNAP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.21. Comparatively, WIN’s free cash flow per share was +0.58. On a percent-of-sales basis, SNAP’s free cash flow was -0.03% while WIN converted 0.41% of its revenues into cash flow. This means that, for a given level of sales, WIN 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. SNAP has a current ratio of 7.00 compared to 0.70 for WIN. This means that SNAP can more easily cover its most immediate liabilities over the next twelve months.

Valuation

SNAP trades at a P/B of 6.10, and a P/S of 18.71, compared to a P/S of 0.21 for WIN. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SNAP is currently priced at a 14.12% to its one-year price target of 11.76. Comparatively, WIN is -32.03% relative to its price target of 9.21. This suggests that WIN is the better investment over the next year.

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. SNAP has a short ratio of 4.07 compared to a short interest of 46.53 for WIN. This implies that the market is currently less bearish on the outlook for SNAP.

Summary




Windstream Holdings, Inc. (NASDAQ:WIN) beats Snap Inc. (NYSE:SNAP) on a total of 8 of the 14 factors compared between the two stocks. WIN higher liquidity, 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, WIN is the cheaper of the two stocks on book value and sales basis, WIN is more undervalued relative to its price target. Finally, MEET has better sentiment signals based on short interest.

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