3D Systems Corporation (NYSE:DDD) shares are up more than 19.21% this year and recently increased 7.18% or $0.69 to settle at $10.30. Electronics for Imaging, Inc. (NASDAQ:EFII), on the other hand, is up 1.56% year to date as of 01/11/2018. It currently trades at $29.99 and has returned -1.61% during the past week.
3D Systems Corporation (NYSE:DDD) and Electronics for Imaging, Inc. (NASDAQ:EFII) are the two most active stocks in the Computer Peripherals industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 DDD to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, EFII is expected to grow at a 6.25% annual rate. All else equal, DDD’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 10.13% for Electronics for Imaging, Inc. (EFII). DDD’s ROI is -5.90% while EFII has a ROI of 5.50%. The interpretation is that EFII’s business generates a higher return on investment than DDD’s.
If there’s one thing investors care more about than earnings, it’s cash flow. DDD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.09. Comparatively, EFII’s free cash flow per share was +0.01. On a percent-of-sales basis, DDD’s free cash flow was -0% while EFII converted 0% of its revenues into cash flow. This means that, for a given level of sales, DDD is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. DDD has a current ratio of 2.60 compared to 2.60 for EFII. This means that DDD can more easily cover its most immediate liabilities over the next twelve months. DDD’s debt-to-equity ratio is 0.01 versus a D/E of 0.39 for EFII. EFII is therefore the more solvent of the two companies, and has lower financial risk.
DDD trades at a forward P/E of 52.28, a P/B of 1.86, and a P/S of 1.84, compared to a forward P/E of 13.42, a P/B of 1.66, and a P/S of 1.40 for EFII. DDD 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. DDD is currently priced at a 6.4% to its one-year price target of 9.68. Comparatively, EFII is -17.84% relative to its price target of 36.50. This suggests that EFII 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 3.30 for DDD and 2.20 for EFII, which implies that analysts are more bullish on the outlook for DDD.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. DDD has a beta of 1.44 and EFII’s beta is 1.14. EFII’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.DDD has a short ratio of 11.66 compared to a short interest of 6.08 for EFII. This implies that the market is currently less bearish on the outlook for EFII.
Electronics for Imaging, Inc. (NASDAQ:EFII) beats 3D Systems Corporation (NYSE:DDD) on a total of 10 of the 14 factors compared between the two stocks. EFII is growing fastly, generates a higher return on investment and has higher cash flow per share. In terms of valuation, EFII is the cheaper of the two stocks on an earnings, book value and sales basis, EFII is more undervalued relative to its price target. Finally, EFII has better sentiment signals based on short interest.