Zynga Inc. (NASDAQ:ZNGA) shares are up more than 2.00% this year and recently increased 0.49% or $0.02 to settle at $4.08. Host Hotels & Resorts, Inc. (NYSE:HST), on the other hand, is up 2.32% year to date as of 05/17/2018. It currently trades at $20.31 and has returned -2.92% during the past week.
Zynga Inc. (NASDAQ:ZNGA) and Host Hotels & Resorts, Inc. (NYSE:HST) are the two most active stocks in the Multimedia & Graphics Software 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ZNGA to grow earnings at a 30.00% annual rate over the next 5 years. Comparatively, HST is expected to grow at a 28.40% annual rate. All else equal, ZNGA’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., compared to an EBITDA margin of 31.2% for Host Hotels & Resorts, Inc. (HST). ZNGA’s ROI is 1.20% while HST has a ROI of 5.50%. The interpretation is that HST’s business generates a higher return on investment than ZNGA’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ZNGA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, HST’s free cash flow per share was -0.07. On a percent-of-sales basis, ZNGA’s free cash flow was -0% while HST converted -0.96% of its revenues into cash flow. This means that, for a given level of sales, ZNGA is able to generate more free cash flow for investors.Liquidity and Financial Risk
ZNGA’s debt-to-equity ratio is 0.00 versus a D/E of 0.60 for HST. HST is therefore the more solvent of the two companies, and has lower financial risk.
ZNGA trades at a forward P/E of 24.00, a P/B of 2.16, and a P/S of 3.54, compared to a forward P/E of 27.98, a P/B of 2.12, and a P/S of 2.78 for HST. ZNGA 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
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. ZNGA is currently priced at a -7.27% to its one-year price target of 4.40. Comparatively, HST is -1.74% relative to its price target of 20.67. This suggests that ZNGA 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. ZNGA has a beta of 0.53 and HST’s beta is 1.31. ZNGA’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. ZNGA has a short ratio of 2.22 compared to a short interest of 4.75 for HST. This implies that the market is currently less bearish on the outlook for ZNGA.Summary
Zynga Inc. (NASDAQ:ZNGA) beats Host Hotels & Resorts, Inc. (NYSE:HST) on a total of 10 of the 14 factors compared between the two stocks. ZNGA is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. ZNGA is more undervalued relative to its price target. Finally, ZNGA has better sentiment signals based on short interest.