Finance

Comcast Corporation (CMCSA) vs. Groupon, Inc. (GRPN): Comparing the Entertainment – Diversified Industry’s Most Active Stocks

Comcast Corporation (NASDAQ:CMCSA) shares are down more than -19.08% this year and recently decreased -0.43% or -$0.14 to settle at $32.41. Groupon, Inc. (NASDAQ:GRPN), on the other hand, is down -3.92% year to date as of 05/17/2018. It currently trades at $4.90 and has returned -5.41% during the past week.

Comcast Corporation (NASDAQ:CMCSA) and Groupon, Inc. (NASDAQ:GRPN) are the two most active stocks in the Entertainment – Diversified industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CMCSA to grow earnings at a 16.93% annual rate over the next 5 years. Comparatively, GRPN is expected to grow at a 30.08% annual rate. All else equal, GRPN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 6.86% for Groupon, Inc. (GRPN). CMCSA’s ROI is 9.70% while GRPN has a ROI of 3.90%. The interpretation is that CMCSA’s business generates a higher return on investment than GRPN’s.

Cash Flow



Cash is king when it comes to investing. CMCSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.57. Comparatively, GRPN’s free cash flow per share was -0.25. On a percent-of-sales basis, CMCSA’s free cash flow was 3.13% while GRPN converted -4.96% of its revenues into cash flow. This means that, for a given level of sales, CMCSA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. CMCSA has a current ratio of 1.00 compared to 1.00 for GRPN. This means that CMCSA can more easily cover its most immediate liabilities over the next twelve months. CMCSA’s debt-to-equity ratio is 0.96 versus a D/E of 0.66 for GRPN. CMCSA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CMCSA trades at a forward P/E of 11.84, a P/B of 2.16, and a P/S of 1.73, compared to a forward P/E of 18.35, a P/B of 7.90, and a P/S of 0.93 for GRPN. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CMCSA is currently priced at a -29% to its one-year price target of 45.65. Comparatively, GRPN is -7.89% relative to its price target of 5.32. This suggests that CMCSA 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. CMCSA has a beta of 1.19 and GRPN’s beta is 1.35. CMCSA’s shares are therefore the less volatile of the two stocks.

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. CMCSA has a short ratio of 2.36 compared to a short interest of 4.60 for GRPN. This implies that the market is currently less bearish on the outlook for CMCSA.

Summary

Comcast Corporation (NASDAQ:CMCSA) beats Groupon, Inc. (NASDAQ:GRPN) on a total of 11 of the 14 factors compared between the two stocks. CMCSA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, CMCSA is the cheaper of the two stocks on an earnings and book value, CMCSA is more undervalued relative to its price target. Finally, CMCSA has better sentiment signals based on short interest.

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