Community Health Systems, Inc. (NYSE:CYH) shares are up more than 2.58% this year and recently decreased -1.80% or -$0.08 to settle at $4.37. Cannae Holdings, Inc. (NYSE:CNNE), on the other hand, is up 19.03% year to date as of 06/13/2018. It currently trades at $20.27 and has returned -0.98% during the past week.
Community Health Systems, Inc. (NYSE:CYH) and Cannae Holdings, Inc. (NYSE:CNNE) are the two most active stocks in the Hospitals industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 CYH to grow earnings at a 6.10% 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 Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. CYH’s ROI is -10.90% while CNNE has a ROI of -4.50%. The interpretation is that CNNE’s business generates a higher return on investment than CYH’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, CYH’s free cash flow was 0% while CNNE converted -1.21% of its revenues into cash flow. This means that, for a given level of sales, CYH is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CYH has a current ratio of 1.80 compared to 1.80 for CNNE. This means that CYH can more easily cover its most immediate liabilities over the next twelve months.Valuation
CYH trades at a P/S of 0.03, compared to a P/B of 1.35, and a P/S of 1.20 for CNNE. 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. CYH is currently priced at a -8.19% to its one-year price target of 4.76. Comparatively, CNNE is -7.15% relative to its price target of 21.83. This suggests that CYH 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. CYH has a beta of 1.62 and CNNE’s beta is 0.60. CNNE’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. CYH has a short ratio of 13.74 compared to a short interest of 1.93 for CNNE. This implies that the market is currently less bearish on the outlook for CNNE.Summary
Community Health Systems, Inc. (NYSE:CYH) beats Cannae Holdings, Inc. (NYSE:CNNE) on a total of 8 of the 14 factors compared between the two stocks. CYH is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CYH is the cheaper of the two stocks on book value and sales basis, CYH is more undervalued relative to its price target. Finally, PCAR has better sentiment signals based on short interest.