Cloudera, Inc. (NYSE:CLDR) shares are down more than -3.76% this year and recently increased 3.51% or $0.59 to settle at $17.42. Synaptics Incorporated (NASDAQ:SYNA), on the other hand, is down -23.89% year to date as of 12/14/2017. It currently trades at $40.78 and has returned 12.56% during the past week.
Cloudera, Inc. (NYSE:CLDR) and Synaptics Incorporated (NASDAQ:SYNA) are the two most active stocks in the Application 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CLDR to grow earnings at a 19.20% annual rate over the next 5 years. Comparatively, SYNA is expected to grow at a 12.50% annual rate. All else equal, CLDR’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 8.24% for Synaptics Incorporated (SYNA). CLDR’s ROI is 39.20% while SYNA has a ROI of 5.70%. The interpretation is that CLDR’s business generates a higher return on investment than SYNA’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CLDR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.07. Comparatively, SYNA’s free cash flow per share was +0.85. On a percent-of-sales basis, CLDR’s free cash flow was -0% while SYNA converted 1.68% of its revenues into cash flow. This means that, for a given level of sales, SYNA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CLDR has a current ratio of 2.00 compared to 2.30 for SYNA. This means that SYNA can more easily cover its most immediate liabilities over the next twelve months. CLDR’s debt-to-equity ratio is 0.00 versus a D/E of 0.59 for SYNA. SYNA is therefore the more solvent of the two companies, and has lower financial risk.
CLDR trades at a P/B of 6.60, and a P/S of 7.82, compared to a forward P/E of 8.86, a P/B of 1.83, and a P/S of 0.78 for SYNA. CLDR 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
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. CLDR is currently priced at a -21.32% to its one-year price target of 22.14. Comparatively, SYNA is -14.63% relative to its price target of 47.77. This suggests that CLDR 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 2.40 for CLDR and 2.80 for SYNA, which implies that analysts are more bullish on the outlook for SYNA.
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. CLDR has a short ratio of 2.44 compared to a short interest of 8.55 for SYNA. This implies that the market is currently less bearish on the outlook for CLDR.
Cloudera, Inc. (NYSE:CLDR) beats Synaptics Incorporated (NASDAQ:SYNA) on a total of 8 of the 14 factors compared between the two stocks. CLDR is growing fastly, generates a higher return on investment and has lower financial risk. CLDR is more undervalued relative to its price target. Finally, CLDR has better sentiment signals based on short interest.