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A Side-by-side Analysis of Twitter, Inc. (TWTR) and Acadia Healthcare Company, Inc. (ACHC)

Twitter, Inc. (NYSE:TWTR) shares are up more than 19.03% this year and recently decreased -0.63% or -$0.18 to settle at $28.58. Acadia Healthcare Company, Inc. (NASDAQ:ACHC), on the other hand, is up 18.91% year to date as of 04/16/2018. It currently trades at $38.80 and has returned -1.22% during the past week.

Twitter, Inc. (NYSE:TWTR) and Acadia Healthcare Company, Inc. (NASDAQ:ACHC) are the two most active stocks in the Internet Information Providers industry 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.

Growth

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 TWTR to grow earnings at a 26.40% annual rate over the next 5 years. Comparatively, ACHC is expected to grow at a 9.62% annual rate. All else equal, TWTR’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. Twitter, Inc. (TWTR) has an EBITDA margin of 10.34%. This suggests that TWTR underlying business is more profitable TWTR’s ROI is 4.60% while ACHC has a ROI of 6.10%. The interpretation is that ACHC’s business generates a higher return on investment than TWTR’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. TWTR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.21. Comparatively, ACHC’s free cash flow per share was +0.55. On a percent-of-sales basis, TWTR’s free cash flow was 6.46% while ACHC converted 1.71% of its revenues into cash flow. This means that, for a given level of sales, TWTR 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. TWTR has a current ratio of 9.10 compared to 1.20 for ACHC. This means that TWTR can more easily cover its most immediate liabilities over the next twelve months. TWTR’s debt-to-equity ratio is 0.36 versus a D/E of 1.26 for ACHC. ACHC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TWTR trades at a forward P/E of 39.92, a P/B of 4.20, and a P/S of 8.86, compared to a forward P/E of 14.08, a P/B of 1.31, and a P/S of 1.23 for ACHC. TWTR 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. TWTR is currently priced at a 3.85% to its one-year price target of 27.52. Comparatively, ACHC is -10.04% relative to its price target of 43.13. This suggests that ACHC is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. TWTR has a beta of 0.85 and ACHC’s beta is 0.62. ACHC’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. TWTR has a short ratio of 0.79 compared to a short interest of 12.90 for ACHC. This implies that the market is currently less bearish on the outlook for TWTR.

Summary

Acadia Healthcare Company, Inc. (NASDAQ:ACHC) beats Twitter, Inc. (NYSE:TWTR) on a total of 8 of the 14 factors compared between the two stocks. ACHC is growing fastly and has higher cash flow per share. In terms of valuation, ACHC is the cheaper of the two stocks on an earnings, book value and sales basis, ACHC is more undervalued relative to its price target. Finally, ITUB has better sentiment signals based on short interest.

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