Altice USA, Inc. (NYSE:ATUS) shares are down more than -4.62% this year and recently increased 1.71% or $0.34 to settle at $20.25. Electronic Arts Inc. (NASDAQ:EA), on the other hand, is up 20.47% year to date as of 03/13/2018. It currently trades at $126.57 and has returned 1.62% during the past week.
Altice USA, Inc. (NYSE:ATUS) and Electronic Arts Inc. (NASDAQ:EA) are the two most active stocks in the market 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 ATUS to grow earnings at a 3.00% annual rate over the next 5 years. Comparatively, EA is expected to grow at a 15.43% annual rate. All else equal, EA’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 30.23% for Electronic Arts Inc. (EA). ATUS’s ROI is 2.80% while EA has a ROI of 19.40%. The interpretation is that EA’s business generates a higher return on investment than ATUS’s.
Cash is king when it comes to investing. ATUS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.29. Comparatively, EA’s free cash flow per share was +2.68. On a percent-of-sales basis, ATUS’s free cash flow was 2.29% while EA converted 16.96% of its revenues into cash flow. This means that, for a given level of sales, EA 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. ATUS has a current ratio of 0.30 compared to 1.90 for EA. This means that EA can more easily cover its most immediate liabilities over the next twelve months. ATUS’s debt-to-equity ratio is 3.83 versus a D/E of 0.00 for EA. ATUS is therefore the more solvent of the two companies, and has lower financial risk.
ATUS trades at a forward P/E of 34.85, a P/B of 2.61, and a P/S of 1.62, compared to a forward P/E of 25.32, a P/B of 9.54, and a P/S of 7.64 for EA. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. ATUS is currently priced at a -30.67% to its one-year price target of 29.21. Comparatively, EA is -8.36% relative to its price target of 138.12. This suggests that ATUS 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 2.10 for ATUS and 1.90 for EA, which implies that analysts are more bullish on the outlook for ATUS.
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. ATUS has a short ratio of 8.72 compared to a short interest of 1.54 for EA. This implies that the market is currently less bearish on the outlook for EA.
Electronic Arts Inc. (NASDAQ:EA) beats Altice USA, Inc. (NYSE:ATUS) on a total of 10 of the 14 factors compared between the two stocks. EA , is more profitable, 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. Finally, EA has better sentiment signals based on short interest.