Earnings

A Side-by-side Analysis of Nutrisystem, Inc. (NTRI) and Shutterfly, Inc. (SFLY)

Nutrisystem, Inc. (NASDAQ:NTRI) and Shutterfly, Inc. (NASDAQ:SFLY) are the two most active stocks in the Personal Services 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

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect NTRI to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, SFLY is expected to grow at a 32.00% annual rate. All else equal, SFLY’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. Nutrisystem, Inc. (NTRI) has an EBITDA margin of 13.45%, compared to an EBITDA margin of 17.14% for Shutterfly, Inc. (SFLY). This suggests that SFLY underlying business is more profitable. NTRI’s ROI is 37.60% while SFLY has a ROI of 4.00%. The interpretation is that NTRI’s business generates a higher return on investment than SFLY’s.

Cash Flow 

The value of a stock is simply the present value of its future free cash flows. NTRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.44. Comparatively, SFLY’s free cash flow per share was -0.01. On a percent-of-sales basis, NTRI’s free cash flow was 0% while SFLY converted -0.03% of its revenues into cash flow. This means that, for a given level of sales, NTRI 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. NTRI has a current ratio of 2.10 compared to 0.70 for SFLY. This means that NTRI can more easily cover its most immediate liabilities over the next twelve months. NTRI’s debt-to-equity ratio is 0.00 versus a D/E of 0.79 for SFLY. SFLY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NTRI trades at a forward P/E of 23.77, a P/B of 12.85, and a P/S of 2.52, compared to a forward P/E of 31.33, a P/B of 3.10, and a P/S of 1.34 for SFLY. NTRI is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. NTRI is currently priced at a -27.18% to its one-year price target of $72.71. Comparatively, SFLY is -12.87% relative to its price target of $53.00. This suggests that NTRI 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 1.40 for NTRI and 2.70 for SFLY, which implies that analysts are more bullish on the outlook for SFLY.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. NTRI has a beta of 1.13 and SFLY’s beta is 0.91. SFLY’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. NTRI has a short ratio of 6.19 compared to a short interest of 7.50 for SFLY. This implies that the market is currently less bearish on the outlook for NTRI.

Summary

Nutrisystem, Inc. (NASDAQ:NTRI) beats Shutterfly, Inc. (NASDAQ:SFLY) on a total of 9 of the 14 factors compared between the two stocks. NTRI 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. NTRI is more undervalued relative to its price target. Finally, NTRI has better sentiment signals based on short interest.

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