Tandem Diabetes Care, Inc. (NASDAQ:TNDM) shares are up more than 650.00% this year and recently increased 8.39% or $1.37 to settle at $17.70. GrubHub Inc. (NYSE:GRUB), on the other hand, is up 57.13% year to date as of 06/12/2018. It currently trades at $112.82 and has returned 3.05% during the past week.
Tandem Diabetes Care, Inc. (NASDAQ:TNDM) and GrubHub Inc. (NYSE:GRUB) are the two most active stocks in the Medical Instruments & Supplies 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 TNDM to grow earnings at a 53.20% annual rate over the next 5 years. Comparatively, GRUB is expected to grow at a 30.45% annual rate. All else equal, TNDM’s higher growth rate would imply a greater potential for capital appreciation.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. EBITDA margin of 14.69% for GrubHub Inc. (GRUB). TNDM’s ROI is -241.70% while GRUB has a ROI of 5.10%. The interpretation is that GRUB’s business generates a higher return on investment than TNDM’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, TNDM’s free cash flow was -0.03% while GRUB converted 0% of its revenues into cash flow. This means that, for a given level of sales, GRUB is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. TNDM has a current ratio of 2.60 compared to 2.10 for GRUB. This means that TNDM can more easily cover its most immediate liabilities over the next twelve months. TNDM’s debt-to-equity ratio is 6.47 versus a D/E of 0.13 for GRUB. TNDM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TNDM trades at a P/B of 26.82, and a P/S of 7.81, compared to a forward P/E of 50.39, a P/B of 8.49, and a P/S of 13.78 for GRUB. 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”. TNDM is currently priced at a 75.77% to its one-year price target of 10.07. Comparatively, GRUB is 6.2% relative to its price target of 106.23. This suggests that GRUB is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. TNDM has a beta of -0.07 and GRUB’s beta is 0.95. TNDM’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. TNDM has a short ratio of 1.16 compared to a short interest of 9.38 for GRUB. This implies that the market is currently less bearish on the outlook for TNDM.Summary
GrubHub Inc. (NYSE:GRUB) beats Tandem Diabetes Care, Inc. (NASDAQ:TNDM) on a total of 7 of the 14 factors compared between the two stocks. GRUB is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. GRUB is more undervalued relative to its price target.