J. C. Penney Company, Inc. (NYSE:JCP) shares are down more than -12.03% this year and recently decreased -7.64% or -$0.23 to settle at $2.78. LendingTree, Inc. (NASDAQ:TREE), on the other hand, is down -27.90% year to date as of 06/13/2018. It currently trades at $245.45 and has returned -9.21% during the past week.
J. C. Penney Company, Inc. (NYSE:JCP) and LendingTree, Inc. (NASDAQ:TREE) are the two most active stocks in the Department Stores 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. Comparatively, TREE is expected to grow at a 38.65% annual rate. All else equal, TREE’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 11.21% for LendingTree, Inc. (TREE). JCP’s ROI is 2.40% while TREE has a ROI of 6.70%. The interpretation is that TREE’s business generates a higher return on investment than JCP’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. JCP’s free cash flow (“FCF”) per share for the trailing twelve months was -1.47. Comparatively, TREE’s free cash flow per share was +0.96. On a percent-of-sales basis, JCP’s free cash flow was -3.69% while TREE converted 0% of its revenues into cash flow. This means that, for a given level of sales, TREE 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. JCP has a current ratio of 1.70 compared to 3.30 for TREE. This means that TREE can more easily cover its most immediate liabilities over the next twelve months. JCP’s debt-to-equity ratio is 3.35 versus a D/E of 0.73 for TREE. JCP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
JCP trades at a forward P/E of 17.71, a P/B of 0.66, and a P/S of 0.07, compared to a forward P/E of 32.88, a P/B of 9.01, and a P/S of 4.48 for TREE. JCP is the cheaper 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 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. JCP is currently priced at a -15.76% to its one-year price target of 3.30. Comparatively, TREE is -26.71% relative to its price target of 334.92. This suggests that TREE 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. JCP has a beta of 0.73 and TREE’s beta is 1.70. JCP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. JCP has a short ratio of 7.19 compared to a short interest of 8.60 for TREE. This implies that the market is currently less bearish on the outlook for JCP.Summary
LendingTree, Inc. (NASDAQ:TREE) beats J. C. Penney Company, Inc. (NYSE:JCP) on a total of 9 of the 14 factors compared between the two stocks. TREE , is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, JCP is the cheaper of the two stocks on an earnings, book value and sales basis, TREE is more undervalued relative to its price target. Finally, SAIC has better sentiment signals based on short interest.