Navigant Consulting, Inc. (NYSE:NCI) and Huron Consulting Group Inc. (NASDAQ:HURN) are the two most active stocks in the Management Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NCI to grow earnings at a 12.50% annual rate over the next 5 years. Comparatively, HURN is expected to grow at a 13.50% annual rate. All else equal, HURN’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 Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. NCI’s ROI is 8.00% while HURN has a ROI of 5.80%. The interpretation is that NCI’s business generates a higher return on investment than HURN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. NCI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.29. Comparatively, HURN’s free cash flow per share was +1.53. On a percent-of-sales basis, NCI’s free cash flow was 1.31% while HURN converted 0% of its revenues into cash flow. This means that, for a given level of sales, NCI 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. NCI has a current ratio of 2.60 compared to 1.60 for HURN. This means that NCI can more easily cover its most immediate liabilities over the next twelve months. NCI’s debt-to-equity ratio is 0.28 versus a D/E of 0.77 for HURN. HURN is therefore the more solvent of the two companies, and has lower financial risk.
NCI trades at a forward P/E of 11.97, a P/B of 1.13, and a P/S of 0.71, compared to a forward P/E of 12.78, a P/B of 1.37, and a P/S of 0.91 for HURN. NCI 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NCI is currently priced at a 1465% to its one-year price target of $1.00. Comparatively, HURN is -31.25% relative to its price target of $48.00. This suggests that HURN is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.00 for NCI and 2.80 for HURN, which implies that analysts are more bullish on the outlook for HURN.
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. NCI has a beta of 0.90 and HURN’s beta is 0.16. HURN’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. NCI has a short ratio of 2.50 compared to a short interest of 3.08 for HURN. This implies that the market is currently less bearish on the outlook for NCI.
Navigant Consulting, Inc. (NYSE:NCI) beats Huron Consulting Group Inc. (NASDAQ:HURN) on a total of 10 of the 14 factors compared between the two stocks. NCI is more profitable, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, NCI is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, NCI has better sentiment signals based on short interest.