Twenty-First Century Fox, Inc. (NASDAQ:FOXA) shares are up more than 8.34% this year and recently decreased -1.50% or -$0.57 to settle at $37.41. Ctrip.com International, Ltd. (NASDAQ:CTRP), on the other hand, is up 10.61% year to date as of 03/13/2018. It currently trades at $48.78 and has returned 2.61% during the past week.
Twenty-First Century Fox, Inc. (NASDAQ:FOXA) and Ctrip.com International, Ltd. (NASDAQ:CTRP) are the two most active stocks in the market 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.
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 FOXA to grow earnings at a 9.33% annual rate over the next 5 years. Comparatively, CTRP is expected to grow at a 7.38% annual rate. All else equal, FOXA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 28.77% for Ctrip.com International, Ltd. (CTRP). FOXA’s ROI is 9.20% while CTRP has a ROI of -1.90%. The interpretation is that FOXA’s business generates a higher return on investment than CTRP’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. FOXA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.46. Comparatively, CTRP’s free cash flow per share was -. On a percent-of-sales basis, FOXA’s free cash flow was -2.99% while CTRP converted 0% of its revenues into cash flow. This means that, for a given level of sales, CTRP 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. FOXA has a current ratio of 2.20 compared to 1.50 for CTRP. This means that FOXA can more easily cover its most immediate liabilities over the next twelve months. FOXA’s debt-to-equity ratio is 1.08 versus a D/E of 0.59 for CTRP. FOXA is therefore the more solvent of the two companies, and has lower financial risk.
FOXA trades at a forward P/E of 16.39, a P/B of 3.77, and a P/S of 2.32, compared to a forward P/E of 40.85, a P/B of 2.03, and a P/S of 6.30 for CTRP. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FOXA is currently priced at a -8.85% to its one-year price target of 41.04. Comparatively, CTRP is -7% relative to its price target of 52.45. This suggests that FOXA 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 2.50 for FOXA and 2.20 for CTRP, which implies that analysts are more bullish on the outlook for FOXA.
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. FOXA has a beta of 1.36 and CTRP’s beta is 1.83. FOXA’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. FOXA has a short ratio of 1.24 compared to a short interest of 6.46 for CTRP. This implies that the market is currently less bearish on the outlook for FOXA.
Twenty-First Century Fox, Inc. (NASDAQ:FOXA) beats Ctrip.com International, Ltd. (NASDAQ:CTRP) on a total of 8 of the 14 factors compared between the two stocks. FOXA is growing fastly, generates a higher return on investment and higher liquidity. In terms of valuation, FOXA is the cheaper of the two stocks on an earnings and sales basis, FOXA is more undervalued relative to its price target. Finally, FOXA has better sentiment signals based on short interest.