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Critical Comparison: American Eagle Outfitters, Inc. (AEO) vs. Corindus Vascular Robotics, Inc. (CVRS)

American Eagle Outfitters, Inc. (NYSE:AEO) shares are up more than 28.78% this year and recently decreased -1.22% or -$0.3 to settle at $24.21. Corindus Vascular Robotics, Inc. (NYSE:CVRS), on the other hand, is down -22.77% year to date as of 06/13/2018. It currently trades at $0.78 and has returned 5.29% during the past week.

American Eagle Outfitters, Inc. (NYSE:AEO) and Corindus Vascular Robotics, Inc. (NYSE:CVRS) are the two most active stocks in the Apparel Stores 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect AEO to grow earnings at a 5.50% annual rate over the next 5 years.

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. American Eagle Outfitters, Inc. (AEO) has an EBITDA margin of 12.03%. This suggests that AEO underlying business is more profitable AEO’s ROI is 16.00% while CVRS has a ROI of -192.70%. The interpretation is that AEO’s business generates a higher return on investment than CVRS’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. AEO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.24. Comparatively, CVRS’s free cash flow per share was -0.05. On a percent-of-sales basis, AEO’s free cash flow was -1.12% while CVRS converted -0.1% of its revenues into cash flow. This means that, for a given level of sales, CVRS 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. AEO has a current ratio of 2.00 compared to 7.80 for CVRS. This means that CVRS can more easily cover its most immediate liabilities over the next twelve months. AEO’s debt-to-equity ratio is 0.00 versus a D/E of 0.93 for CVRS. CVRS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AEO trades at a forward P/E of 15.26, a P/B of 3.54, and a P/S of 1.11, compared to a P/B of 11.14, and a P/S of 12.66 for CVRS. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AEO is currently priced at a 6.04% to its one-year price target of 22.83. Comparatively, CVRS is -66.38% relative to its price target of 2.32. This suggests that CVRS 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. AEO has a beta of 1.01 and CVRS’s beta is 0.70. CVRS’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. AEO has a short ratio of 3.50 compared to a short interest of 11.97 for CVRS. This implies that the market is currently less bearish on the outlook for AEO.

Summary

Corindus Vascular Robotics, Inc. (NYSE:CVRS) beats American Eagle Outfitters, Inc. (NYSE:AEO) on a total of 7 of the 14 factors compared between the two stocks. CVRS is growing fastly, has a higher cash conversion rate and higher liquidity. CVRS is more undervalued relative to its price target. Finally, FL has better sentiment signals based on short interest.

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