JetBlue Airways Corporation (NASDAQ:JBLU) shares are down more than -6.71% this year and recently decreased -2.02% or -$0.43 to settle at $20.84. TAL Education Group (NYSE:TAL), on the other hand, is up 24.30% year to date as of 03/23/2018. It currently trades at $36.93 and has returned -3.63% during the past week.
JetBlue Airways Corporation (NASDAQ:JBLU) and TAL Education Group (NYSE:TAL) 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect JBLU to grow earnings at a 12.21% annual rate over the next 5 years. Comparatively, TAL is expected to grow at a 62.30% annual rate. All else equal, TAL’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. JetBlue Airways Corporation (JBLU) has an EBITDA margin of 10.35%. This suggests that JBLU underlying business is more profitable JBLU’s ROI is 10.90% while TAL has a ROI of 8.40%. The interpretation is that JBLU’s business generates a higher return on investment than TAL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. JBLU’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, TAL’s free cash flow per share was +0.07. On a percent-of-sales basis, JBLU’s free cash flow was -1.06% while TAL converted 3.29% of its revenues into cash flow. This means that, for a given level of sales, TAL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. JBLU has a current ratio of 0.50 compared to 1.10 for TAL. This means that TAL can more easily cover its most immediate liabilities over the next twelve months. JBLU’s debt-to-equity ratio is 0.25 versus a D/E of 0.26 for TAL. TAL is therefore the more solvent of the two companies, and has lower financial risk.
JBLU trades at a forward P/E of 9.16, a P/B of 1.39, and a P/S of 0.98, compared to a forward P/E of 71.02, a P/B of 20.40, and a P/S of 12.34 for TAL. JBLU is the cheaper 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. JBLU is currently priced at a -14.59% to its one-year price target of 24.40. Comparatively, TAL is -2.07% relative to its price target of 37.71. This suggests that JBLU 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 2.70 for JBLU and 1.80 for TAL, which implies that analysts are more bullish on the outlook for JBLU.
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. JBLU has a beta of 0.51 and TAL’s beta is 0.34. TAL’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. JBLU has a short ratio of 2.79 compared to a short interest of 2.45 for TAL. This implies that the market is currently less bearish on the outlook for TAL.
TAL Education Group (NYSE:TAL) beats JetBlue Airways Corporation (NASDAQ:JBLU) on a total of 7 of the 14 factors compared between the two stocks. TAL is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, JBLU is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TAL has better sentiment signals based on short interest.