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Choosing Between Fitbit, Inc. (FIT) and BP p.l.c. (BP)

Fitbit, Inc. (NYSE:FIT) shares are up more than 26.27% this year and recently decreased -2.83% or -$0.21 to settle at $7.21. BP p.l.c. (NYSE:BP), on the other hand, is up 7.38% year to date as of 06/15/2018. It currently trades at $45.13 and has returned -4.06% during the past week.

Fitbit, Inc. (NYSE:FIT) and BP p.l.c. (NYSE:BP) are the two most active stocks in the Scientific & Technical Instruments 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect FIT to grow earnings at a 1.00% 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 Return on Investment (ROI) as measures of profitability and return. FIT’s ROI is -28.90% while BP has a ROI of 2.10%. The interpretation is that BP’s business generates a higher return on investment than FIT’s.

Cash Flow



Cash is king when it comes to investing. FIT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, BP’s free cash flow per share was -0.06. On a percent-of-sales basis, FIT’s free cash flow was -0.13% while BP converted -0.08% of its revenues into cash flow. This means that, for a given level of sales, BP is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. FIT has a current ratio of 2.10 compared to 1.10 for BP. This means that FIT can more easily cover its most immediate liabilities over the next twelve months. FIT’s debt-to-equity ratio is 0.00 versus a D/E of 0.62 for BP. BP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FIT trades at a P/B of 2.27, and a P/S of 1.12, compared to a forward P/E of 13.46, a P/B of 1.50, and a P/S of 0.59 for BP. FIT 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FIT is currently priced at a 18.98% to its one-year price target of 6.06. Comparatively, BP is -7.29% relative to its price target of 48.68. This suggests that BP is the better investment over the next year.

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. FIT has a short ratio of 5.81 compared to a short interest of 0.81 for BP. This implies that the market is currently less bearish on the outlook for BP.

Summary




BP p.l.c. (NYSE:BP) beats Fitbit, Inc. (NYSE:FIT) on a total of 7 of the 14 factors compared between the two stocks. BP is growing fastly and has a higher cash conversion rate. In terms of valuation, BP is the cheaper of the two stocks on book value and sales basis, BP is more undervalued relative to its price target. Finally, BP has better sentiment signals based on short interest.

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