Macy’s, Inc. (NYSE:M) shares are up more than 52.32% this year and recently decreased -4.00% or -$1.6 to settle at $38.37. Camping World Holdings, Inc. (NYSE:CWH), on the other hand, is down -46.45% year to date as of 06/13/2018. It currently trades at $23.91 and has returned 13.64% during the past week.
Macy’s, Inc. (NYSE:M) and Camping World Holdings, Inc. (NYSE:CWH) are the two most active stocks in the Department Stores industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect M to grow earnings at a -2.65% annual rate over the next 5 years. Comparatively, CWH is expected to grow at a 10.70% annual rate. All else equal, CWH’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 8.79% for Camping World Holdings, Inc. (CWH). M’s ROI is 10.90% while CWH has a ROI of 16.50%. The interpretation is that CWH’s business generates a higher return on investment than M’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. M’s free cash flow (“FCF”) per share for the trailing twelve months was +0.24. Comparatively, CWH’s free cash flow per share was -1.70. On a percent-of-sales basis, M’s free cash flow was 0.3% while CWH converted -3.48% of its revenues into cash flow. This means that, for a given level of sales, M is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. M has a current ratio of 1.50 compared to 1.50 for CWH. This means that M can more easily cover its most immediate liabilities over the next twelve months. M’s debt-to-equity ratio is 1.01 versus a D/E of 37.05 for CWH. CWH is therefore the more solvent of the two companies, and has lower financial risk.Valuation
M trades at a forward P/E of 10.99, a P/B of 2.02, and a P/S of 0.47, compared to a forward P/E of 7.42, a P/B of 15.33, and a P/S of 0.40 for CWH. M is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. M is currently priced at a 14.26% to its one-year price target of 33.58. Comparatively, CWH is -38.85% relative to its price target of 39.10. This suggests that CWH is the better investment over the next year.
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. M has a short ratio of 4.35 compared to a short interest of 2.87 for CWH. This implies that the market is currently less bearish on the outlook for CWH.Summary
Camping World Holdings, Inc. (NYSE:CWH) beats Macy’s, Inc. (NYSE:M) on a total of 8 of the 14 factors compared between the two stocks. CWH is more profitable and generates a higher return on investment. In terms of valuation, CWH is the cheaper of the two stocks on an earnings and sales basis, CWH is more undervalued relative to its price target. Finally, CWH has better sentiment signals based on short interest.