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Critical Comparison: Overstock.com, Inc. (OSTK) vs. Digital Turbine, Inc. (APPS)

Overstock.com, Inc. (NASDAQ:OSTK) shares are down more than -39.87% this year and recently increased 8.09% or $2.87 to settle at $38.42. Digital Turbine, Inc. (NASDAQ:APPS), on the other hand, is up 5.03% year to date as of 06/12/2018. It currently trades at $1.88 and has returned 9.94% during the past week.

Overstock.com, Inc. (NASDAQ:OSTK) and Digital Turbine, Inc. (NASDAQ:APPS) are the two most active stocks in the Catalog & Mail Order Houses 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect OSTK to grow earnings at a 4.00% annual rate over the next 5 years. Comparatively, APPS is expected to grow at a 25.00% annual rate. All else equal, APPS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use Return on Investment (ROI) to measure this. OSTK’s ROI is -42.50% while APPS has a ROI of -31.00%. The interpretation is that APPS’s business generates a higher return on investment than OSTK’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. OSTK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.50. Comparatively, APPS’s free cash flow per share was +0.02. On a percent-of-sales basis, OSTK’s free cash flow was -0.83% while APPS converted 0% of its revenues into cash flow. This means that, for a given level of sales, APPS 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. OSTK has a current ratio of 1.40 compared to 0.80 for APPS. This means that OSTK can more easily cover its most immediate liabilities over the next twelve months. OSTK’s debt-to-equity ratio is 0.00 versus a D/E of 0.13 for APPS. APPS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

OSTK trades at a P/B of 6.10, and a P/S of 0.64, compared to a P/B of 2.27, and a P/S of 1.21 for APPS. OSTK 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

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. OSTK is currently priced at a -61.58% to its one-year price target of 100.00. Comparatively, APPS is -40.32% relative to its price target of 3.15. This suggests that OSTK is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. OSTK has a beta of 1.71 and APPS’s beta is 1.41. APPS’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. OSTK has a short ratio of 4.58 compared to a short interest of 7.10 for APPS. This implies that the market is currently less bearish on the outlook for OSTK.

Summary

Digital Turbine, Inc. (NASDAQ:APPS) beats Overstock.com, Inc. (NASDAQ:OSTK) on a total of 6 of the 14 factors compared between the two stocks. APPS higher liquidity, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, KDMN has better sentiment signals based on short interest.

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