Worldpay, Inc. (NYSE:WP) shares are up more than 15.61% this year and recently increased 0.02% or $0.02 to settle at $85.03. Lightbridge Corporation (NASDAQ:LTBR), on the other hand, is up 18.85% year to date as of 03/13/2018. It currently trades at $1.45 and has returned -4.61% during the past week.
Worldpay, Inc. (NYSE:WP) and Lightbridge Corporation (NASDAQ:LTBR) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect WP to grow earnings at a 15.99% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. WP’s ROI is -1.80% while LTBR has a ROI of -136.30%. The interpretation is that WP’s business generates a higher return on investment than LTBR’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, WP’s free cash flow was 0% while LTBR converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, WP 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. WP has a current ratio of 0.70 compared to 3.70 for LTBR. This means that LTBR can more easily cover its most immediate liabilities over the next twelve months. WP’s debt-to-equity ratio is 10.72 versus a D/E of 0.00 for LTBR. WP is therefore the more solvent of the two companies, and has lower financial risk.
WP trades at a forward P/E of 19.10, a P/B of 25.77, and a P/S of 6.51, compared to a P/B of 2.84, and a P/S of 38.04 for LTBR. WP is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. WP is currently priced at a -7.16% to its one-year price target of 91.59. Comparatively, LTBR is -86.19% relative to its price target of 10.50. This suggests that LTBR is the better investment over the next year.
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. WP has a beta of 0.58 and LTBR’s beta is 1.27. WP’s shares are therefore the less volatile of the two stocks.
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. WP has a short ratio of 2.16 compared to a short interest of 0.36 for LTBR. This implies that the market is currently less bearish on the outlook for LTBR.
Lightbridge Corporation (NASDAQ:LTBR) beats Worldpay, Inc. (NYSE:WP) on a total of 7 of the 14 factors compared between the two stocks. LTBR is growing fastly and has lower financial risk. In terms of valuation, LTBR is the cheaper of the two stocks on an earnings and book value, LTBR is more undervalued relative to its price target. Finally, LTBR has better sentiment signals based on short interest.