Baidu, Inc. (NASDAQ:BIDU) shares are up more than 10.31% this year and recently decreased -2.76% or -$7.32 to settle at $258.35. The Progressive Corporation (NYSE:PGR), on the other hand, is up 6.55% year to date as of 03/13/2018. It currently trades at $60.01 and has returned 2.37% during the past week.
Baidu, Inc. (NASDAQ:BIDU) and The Progressive Corporation (NYSE:PGR) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BIDU to grow earnings at a 2.67% annual rate over the next 5 years. Comparatively, PGR is expected to grow at a 17.86% annual rate. All else equal, PGR’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 9.42% for The Progressive Corporation (PGR). BIDU’s ROI is 6.40% while PGR has a ROI of 13.10%. The interpretation is that PGR’s business generates a higher return on investment than BIDU’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. BIDU’s free cash flow (“FCF”) per share for the trailing twelve months was +3.57. Comparatively, PGR’s free cash flow per share was -. On a percent-of-sales basis, BIDU’s free cash flow was 9.86% while PGR converted 0% of its revenues into cash flow. This means that, for a given level of sales, BIDU is able to generate more free cash flow for investors.
Liquidity and Financial Risk
BIDU’s debt-to-equity ratio is 0.71 versus a D/E of 0.36 for PGR. BIDU is therefore the more solvent of the two companies, and has lower financial risk.
BIDU trades at a forward P/E of 22.44, a P/B of 4.94, and a P/S of 6.54, compared to a forward P/E of 15.93, a P/B of 3.76, and a P/S of 1.30 for PGR. BIDU 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
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. BIDU is currently priced at a -3.41% to its one-year price target of 267.48. Comparatively, PGR is 1.25% relative to its price target of 59.27. This suggests that BIDU 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 BIDU and 2.40 for PGR, which implies that analysts are more bullish on the outlook for PGR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. BIDU has a beta of 1.83 and PGR’s beta is 0.71. PGR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. BIDU has a short ratio of 1.27 compared to a short interest of 2.90 for PGR. This implies that the market is currently less bearish on the outlook for BIDU.
The Progressive Corporation (NYSE:PGR) beats Baidu, Inc. (NASDAQ:BIDU) on a total of 7 of the 14 factors compared between the two stocks. PGR is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, PGR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BKD has better sentiment signals based on short interest.