FireEye, Inc. (NASDAQ:FEYE) shares are up more than 24.08% this year and recently decreased -1.07% or -$0.19 to settle at $17.62. Nielsen Holdings plc (NYSE:NLSN), on the other hand, is down -7.97% year to date as of 03/13/2018. It currently trades at $33.50 and has returned 0.66% during the past week.
FireEye, Inc. (NASDAQ:FEYE) and Nielsen Holdings plc (NYSE:NLSN) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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 FEYE to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, NLSN is expected to grow at a 1.80% annual rate. All else equal, FEYE’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 19.52% for Nielsen Holdings plc (NLSN). FEYE’s ROI is -17.30% while NLSN has a ROI of 7.40%. The interpretation is that NLSN’s business generates a higher return on investment than FEYE’s.
The value of a stock is simply the present value of its future free cash flows. FEYE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, NLSN’s free cash flow per share was +0.90. On a percent-of-sales basis, FEYE’s free cash flow was 0% while NLSN converted 4.88% of its revenues into cash flow. This means that, for a given level of sales, NLSN is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. FEYE has a current ratio of 1.90 compared to 1.30 for NLSN. This means that FEYE can more easily cover its most immediate liabilities over the next twelve months. FEYE’s debt-to-equity ratio is 1.05 versus a D/E of 1.99 for NLSN. NLSN is therefore the more solvent of the two companies, and has lower financial risk.
FEYE trades at a forward P/E of 118.26, a P/B of 4.32, and a P/S of 4.28, compared to a forward P/E of 18.04, a P/B of 2.81, and a P/S of 1.82 for NLSN. FEYE 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
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”. FEYE is currently priced at a -1.73% to its one-year price target of 17.93. Comparatively, NLSN is -17.75% relative to its price target of 40.73. This suggests that NLSN 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 2.30 for FEYE and 2.20 for NLSN, which implies that analysts are more bullish on the outlook for FEYE.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. FEYE has a beta of 0.42 and NLSN’s beta is 0.97. FEYE’s shares are therefore the less volatile of the two stocks.
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. FEYE has a short ratio of 6.49 compared to a short interest of 5.17 for NLSN. This implies that the market is currently less bearish on the outlook for NLSN.
Nielsen Holdings plc (NYSE:NLSN) beats FireEye, Inc. (NASDAQ:FEYE) on a total of 10 of the 14 factors compared between the two stocks. NLSN is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, NLSN is the cheaper of the two stocks on an earnings, book value and sales basis, NLSN is more undervalued relative to its price target. Finally, NLSN has better sentiment signals based on short interest.