eBay Inc. (NASDAQ:EBAY) shares are up more than 1.75% this year and recently increased 0.13% or $0.05 to settle at $38.40. DDR Corp. (NYSE:DDR), on the other hand, is down -19.64% year to date as of 05/17/2018. It currently trades at $7.20 and has returned -3.61% during the past week.
eBay Inc. (NASDAQ:EBAY) and DDR Corp. (NYSE:DDR) are the two most active stocks in the Specialty Retail, Other 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
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 EBAY to grow earnings at a 15.11% annual rate over the next 5 years. Comparatively, DDR is expected to grow at a -6.04% annual rate. All else equal, EBAY’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 13.39% for DDR Corp. (DDR). EBAY’s ROI is 11.00% while DDR has a ROI of -3.10%. The interpretation is that EBAY’s business generates a higher return on investment than DDR’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. EBAY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, DDR’s free cash flow per share was -0.10. On a percent-of-sales basis, EBAY’s free cash flow was 3.43% while DDR converted -0% of its revenues into cash flow. This means that, for a given level of sales, EBAY is able to generate more free cash flow for investors.Liquidity and Financial Risk
EBAY’s debt-to-equity ratio is 1.21 versus a D/E of 1.67 for DDR. DDR is therefore the more solvent of the two companies, and has lower financial risk.
EBAY trades at a forward P/E of 14.56, a P/B of 5.11, and a P/S of 3.84, compared to a forward P/E of 54.96, a P/B of 1.18, and a P/S of 2.97 for DDR. EBAY is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
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. EBAY is currently priced at a -20.81% to its one-year price target of 48.49. Comparatively, DDR is -17.9% relative to its price target of 8.77. This suggests that EBAY is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. EBAY has a beta of 1.25 and DDR’s beta is 0.66. DDR’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. EBAY has a short ratio of 3.35 compared to a short interest of 4.01 for DDR. This implies that the market is currently less bearish on the outlook for EBAY.Summary
eBay Inc. (NASDAQ:EBAY) beats DDR Corp. (NYSE:DDR) on a total of 11 of the 14 factors compared between the two stocks. EBAY is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. EBAY is more undervalued relative to its price target. Finally, EBAY has better sentiment signals based on short interest.