CenturyLink, Inc. (NYSE:CTL) shares are up more than 10.85% this year and recently increased 2.32% or $0.42 to settle at $18.49. GNC Holdings, Inc. (NYSE:GNC), on the other hand, is down -4.34% year to date as of 05/04/2018. It currently trades at $3.53 and has returned -3.02% during the past week.
CenturyLink, Inc. (NYSE:CTL) and GNC Holdings, Inc. (NYSE:GNC) are the two most active stocks in the Telecom Services – Domestic 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CTL to grow earnings at a -14.40% annual rate over the next 5 years.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. CenturyLink, Inc. (CTL) has an EBITDA margin of 33.8%. This suggests that CTL underlying business is more profitable CTL’s ROI is 2.90% while GNC has a ROI of -15.80%. The interpretation is that CTL’s business generates a higher return on investment than GNC’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, GNC’s free cash flow per share was +0.26. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while GNC converted 0.89% of its revenues into cash flow. This means that, for a given level of sales, GNC 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. CTL has a current ratio of 0.90 compared to 1.50 for GNC. This means that GNC can more easily cover its most immediate liabilities over the next twelve months.Valuation
CTL trades at a forward P/E of 17.43, a P/B of 0.70, and a P/S of 1.13, compared to a forward P/E of 5.52, and a P/S of 0.13 for GNC. CTL 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. CTL is currently priced at a -6.33% to its one-year price target of 19.74. Comparatively, GNC is 4.44% relative to its price target of 3.38. This suggests that CTL is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CTL has a beta of 0.79 and GNC’s beta is 0.84. CTL’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. CTL has a short ratio of 9.60 compared to a short interest of 8.35 for GNC. This implies that the market is currently less bearish on the outlook for GNC.Summary
GNC Holdings, Inc. (NYSE:GNC) beats CenturyLink, Inc. (NYSE:CTL) on a total of 9 of the 14 factors compared between the two stocks. GNC is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, GNC is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, GNC has better sentiment signals based on short interest.