Restaurant Brands International Inc. (NYSE:QSR) shares are down more than -10.43% this year and recently decreased -1.92% or -$1.08 to settle at $55.07. United Rentals, Inc. (NYSE:URI), on the other hand, is up 0.60% year to date as of 04/13/2018. It currently trades at $172.95 and has returned 0.47% during the past week.
Restaurant Brands International Inc. (NYSE:QSR) and United Rentals, Inc. (NYSE:URI) are the two most active stocks in the Restaurants industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect QSR to grow earnings at a 19.13% annual rate over the next 5 years. Comparatively, URI is expected to grow at a 16.50% annual rate. All else equal, QSR’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 27.65% for United Rentals, Inc. (URI).Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. QSR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.80. Comparatively, URI’s free cash flow per share was +1.71. On a percent-of-sales basis, QSR’s free cash flow was 9.59% while URI converted 2.17% of its revenues into cash flow. This means that, for a given level of sales, QSR is able to generate more free cash flow for investors.Valuation
QSR trades at a forward P/E of 18.48, a P/B of 6.03, and a P/S of 2.94, compared to a forward P/E of 10.62, a P/B of 4.71, and a P/S of 2.24 for URI. QSR 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. QSR is currently priced at a -21.89% to its one-year price target of 70.50. Comparatively, URI is -4.07% relative to its price target of 180.29. This suggests that QSR is the better investment over the next year.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. QSR has a short ratio of 3.54 compared to a short interest of 2.54 for URI. This implies that the market is currently less bearish on the outlook for URI.Summary
Restaurant Brands International Inc. (NYSE:QSR) beats United Rentals, Inc. (NYSE:URI) on a total of 8 of the 14 factors compared between the two stocks. QSR is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. QSR is more undervalued relative to its price target. Finally, YUMC has better sentiment signals based on short interest.