Glu Mobile Inc. (NASDAQ:GLUU) shares are up more than 105.15% this year and recently increased 2.05% or $0.08 to settle at $3.98. Avid Technology, Inc. (NASDAQ:AVID), on the other hand, is up 16.14% year to date as of 11/13/2017. It currently trades at $5.11 and has returned 20.80% during the past week.
Glu Mobile Inc. (NASDAQ:GLUU) and Avid Technology, Inc. (NASDAQ:AVID) are the two most active stocks in the Multimedia & Graphics Software industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect GLUU to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, AVID is expected to grow at a 15.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar 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. EBITDA margin of 10.34% for Avid Technology, Inc. (AVID). GLUU’s ROI is -33.70% while AVID has a ROI of -87.90%. The interpretation is that GLUU’s business generates a higher return on investment than AVID’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GLUU’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, AVID’s free cash flow per share was -0.07. On a percent-of-sales basis, GLUU’s free cash flow was -0% while AVID converted -0% of its revenues into cash flow. This means that, for a given level of sales, GLUU 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. GLUU has a current ratio of 1.10 compared to 0.60 for AVID. This means that GLUU can more easily cover its most immediate liabilities over the next twelve months.
GLUU trades at a forward P/E of 42.80, a P/B of 2.93, and a P/S of 2.11, compared to a forward P/E of 19.65, and a P/S of 0.39 for AVID. GLUU is the expensive 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. GLUU is currently priced at a -16.91% to its one-year price target of 4.79. Comparatively, AVID is -31.87% relative to its price target of 7.50. This suggests that AVID 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 2.20 for GLUU and 2.30 for AVID, which implies that analysts are more bullish on the outlook for AVID.
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. GLUU has a beta of 1.77 and AVID’s beta is 1.60. AVID’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. GLUU has a short ratio of 0.79 compared to a short interest of 20.08 for AVID. This implies that the market is currently less bearish on the outlook for GLUU.
Avid Technology, Inc. (NASDAQ:AVID) beats Glu Mobile Inc. (NASDAQ:GLUU) on a total of 7 of the 14 factors compared between the two stocks. AVID generates a higher return on investment and has lower financial risk. In terms of valuation, AVID is the cheaper of the two stocks on an earnings, book value and sales basis, AVID is more undervalued relative to its price target. Finally, TTWO has better sentiment signals based on short interest.