Chegg, Inc. (NYSE:CHGG) shares are up more than 74.63% this year and recently decreased -1.86% or -$0.54 to settle at $28.50. Hibbett Sports, Inc. (NASDAQ:HIBB), on the other hand, is up 16.91% year to date as of 06/13/2018. It currently trades at $23.85 and has returned -5.54% during the past week.
Chegg, Inc. (NYSE:CHGG) and Hibbett Sports, Inc. (NASDAQ:HIBB) are the two most active stocks in the Education & Training 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CHGG to grow earnings at a 25.00% annual rate over the next 5 years. Comparatively, HIBB is expected to grow at a -7.20% annual rate. All else equal, CHGG’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., compared to an EBITDA margin of 8.35% for Hibbett Sports, Inc. (HIBB). CHGG’s ROI is -5.40% while HIBB has a ROI of 11.20%. The interpretation is that HIBB’s business generates a higher return on investment than CHGG’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CHGG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, HIBB’s free cash flow per share was -. On a percent-of-sales basis, CHGG’s free cash flow was 0% while HIBB converted 0% of its revenues into cash flow. This means that, for a given level of sales, CHGG is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CHGG has a current ratio of 4.40 compared to 3.00 for HIBB. This means that CHGG can more easily cover its most immediate liabilities over the next twelve months. CHGG’s debt-to-equity ratio is 0.00 versus a D/E of 0.01 for HIBB. HIBB is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CHGG trades at a forward P/E of 52.97, a P/B of 8.53, and a P/S of 11.88, compared to a forward P/E of 12.01, a P/B of 1.42, and a P/S of 0.47 for HIBB. CHGG is the expensive of the two stocks on an earnings, book value and sales basis. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CHGG is currently priced at a 15.62% to its one-year price target of 24.65. Comparatively, HIBB is -5.81% relative to its price target of 25.32. This suggests that HIBB is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CHGG has a beta of 1.44 and HIBB’s beta is 0.79. HIBB’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. CHGG has a short ratio of 13.48 compared to a short interest of 9.35 for HIBB. This implies that the market is currently less bearish on the outlook for HIBB.Summary
Hibbett Sports, Inc. (NASDAQ:HIBB) beats Chegg, Inc. (NYSE:CHGG) on a total of 8 of the 14 factors compared between the two stocks. HIBB is growing fastly and generates a higher return on investment. In terms of valuation, HIBB is the cheaper of the two stocks on an earnings, book value and sales basis, HIBB is more undervalued relative to its price target. Finally, HIBB has better sentiment signals based on short interest.