Finance

Critical Comparison: Sirius XM Holdings Inc. (SIRI) vs. The Gap, Inc. (GPS)

Sirius XM Holdings Inc. (NASDAQ:SIRI) shares are up more than 28.54% this year and recently decreased -0.58% or -$0.04 to settle at $6.89. The Gap, Inc. (NYSE:GPS), on the other hand, is down -7.84% year to date as of 05/17/2018. It currently trades at $31.39 and has returned 8.99% during the past week.

Sirius XM Holdings Inc. (NASDAQ:SIRI) and The Gap, Inc. (NYSE:GPS) are the two most active stocks in the Broadcasting – Radio industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect SIRI to grow earnings at a 30.40% annual rate over the next 5 years. Comparatively, GPS is expected to grow at a 10.83% annual rate. All else equal, SIRI’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. , compared to an EBITDA margin of 12.97% for The Gap, Inc. (GPS). SIRI’s ROI is 22.30% while GPS has a ROI of 21.30%. The interpretation is that SIRI’s business generates a higher return on investment than GPS’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. SIRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.06. Comparatively, GPS’s free cash flow per share was +1.08. On a percent-of-sales basis, SIRI’s free cash flow was 4.96% while GPS converted 2.65% of its revenues into cash flow. This means that, for a given level of sales, SIRI 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. SIRI has a current ratio of 0.20 compared to 1.90 for GPS. This means that GPS can more easily cover its most immediate liabilities over the next twelve months.

Valuation

SIRI trades at a forward P/E of 24.61, and a P/S of 5.59, compared to a forward P/E of 11.36, a P/B of 3.87, and a P/S of 0.77 for GPS. SIRI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. SIRI is currently priced at a 9.37% to its one-year price target of 6.30. Comparatively, GPS is -7.73% relative to its price target of 34.02. This suggests that GPS is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SIRI has a beta of 1.11 and GPS’s beta is 0.81. GPS’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. SIRI has a short ratio of 12.60 compared to a short interest of 5.84 for GPS. This implies that the market is currently less bearish on the outlook for GPS.

Summary

The Gap, Inc. (NYSE:GPS) beats Sirius XM Holdings Inc. (NASDAQ:SIRI) on a total of 7 of the 14 factors compared between the two stocks. GPS is growing fastly and higher liquidity. In terms of valuation, GPS is the cheaper of the two stocks on an earnings and sales basis, GPS is more undervalued relative to its price target. Finally, GPS has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Analyzing the Insider Data for Wells Fargo & ... Recent insider trends for Wells Fargo & Company (NYSE:WFC) have caught the attention of investors. Patters in insider activity can help analysts f...
TripAdvisor, Inc. (TRIP): Does This Move Make Any ... TripAdvisor, Inc. (NASDAQ:TRIP) is on our radar right now but there could still be some opportunities on the horizon. Now trading with a market value ...
Himax Technologies, Inc. (HIMX) vs. Curis, Inc. (C... Himax Technologies, Inc. (NASDAQ:HIMX) shares are down more than -31.09% this year and recently decreased -3.62% or -$0.27 to settle at $7.18. Curis, ...
How Insiders and Institutions are Trading Ambev S.... Recent insider trends for Ambev S.A. (NYSE:ABEV) have caught the attention of investors. Insider data is useful because it can reveal what a company’s...
Are Versartis, Inc. (VSAR)’s Recent Ownershi... Recent insider trends for Versartis, Inc. (NASDAQ:VSAR) have caught the attention of investors. Analysts study insider data to get a sense of sense of...