SeaWorld Entertainment, Inc. (NYSE:SEAS) shares are down more than -35.60% this year and recently increased 3.74% or $0.44 to settle at $12.19. Planet Fitness, Inc. (NYSE:PLNT), on the other hand, is up 57.61% year to date as of 12/01/2017. It currently trades at $31.68 and has returned 1.21% during the past week.
SeaWorld Entertainment, Inc. (NYSE:SEAS) and Planet Fitness, Inc. (NYSE:PLNT) are the two most active stocks in the Sporting Activities industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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. Analysts expect SEAS to grow earnings at a 12.90% annual rate over the next 5 years. Comparatively, PLNT is expected to grow at a 18.10% annual rate. All else equal, PLNT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 44.45% for Planet Fitness, Inc. (PLNT). SEAS’s ROI is 2.50% while PLNT has a ROI of 16.80%. The interpretation is that PLNT’s business generates a higher return on investment than SEAS’s.
If there’s one thing investors care more about than earnings, it’s cash flow. SEAS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.73. Comparatively, PLNT’s free cash flow per share was +0.19. On a percent-of-sales basis, SEAS’s free cash flow was 4.91% while PLNT converted 0% of its revenues into cash flow. This means that, for a given level of sales, SEAS 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. SEAS has a current ratio of 0.60 compared to 1.60 for PLNT. This means that PLNT can more easily cover its most immediate liabilities over the next twelve months.
SEAS trades at a forward P/E of 39.58, a P/B of 3.50, and a P/S of 0.86, compared to a forward P/E of 32.39, and a P/S of 7.49 for PLNT. SEAS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
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. SEAS is currently priced at a -10.89% to its one-year price target of 13.68. Comparatively, PLNT is -1% relative to its price target of 32.00. This suggests that SEAS 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 2.60 for SEAS and 1.60 for PLNT, which implies that analysts are more bullish on the outlook for SEAS.
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. SEAS has a short ratio of 11.83 compared to a short interest of 11.56 for PLNT. This implies that the market is currently less bearish on the outlook for PLNT.
Planet Fitness, Inc. (NYSE:PLNT) beats SeaWorld Entertainment, Inc. (NYSE:SEAS) on a total of 10 of the 14 factors compared between the two stocks. PLNT has higher cash flow per share, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, PLNT is the cheaper of the two stocks on an earnings and book value, Finally, PLNT has better sentiment signals based on short interest.