GameStop Corp. (NYSE:GME) shares are down more than -21.23% this year and recently decreased -2.95% or -$0.43 to settle at $14.14. Keane Group, Inc. (NYSE:FRAC), on the other hand, is down -34.40% year to date as of 07/02/2018. It currently trades at $12.47 and has returned -5.10% during the past week.
GameStop Corp. (NYSE:GME) and Keane Group, Inc. (NYSE:FRAC) are the two most active stocks in the Electronics Stores 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 GME to grow earnings at a 15.00% annual rate over the next 5 years.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 13.66% for Keane Group, Inc. (FRAC). GME’s ROI is 4.40% while FRAC has a ROI of -0.50%. The interpretation is that GME’s business generates a higher return on investment than FRAC’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. GME’s free cash flow (“FCF”) per share for the trailing twelve months was -5.79. Comparatively, FRAC’s free cash flow per share was +0.05. On a percent-of-sales basis, GME’s free cash flow was -6.39% while FRAC converted 0.36% of its revenues into cash flow. This means that, for a given level of sales, FRAC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. GME has a current ratio of 1.50 compared to 1.50 for FRAC. This means that GME can more easily cover its most immediate liabilities over the next twelve months. GME’s debt-to-equity ratio is 0.37 versus a D/E of 0.55 for FRAC. FRAC is therefore the more solvent of the two companies, and has lower financial risk.Valuation
GME trades at a forward P/E of 4.95, a P/B of 0.66, and a P/S of 0.16, compared to a forward P/E of 7.84, a P/B of 2.73, and a P/S of 0.78 for FRAC. GME is the cheaper of the two stocks on an earnings, book value and sales basis. 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. GME is currently priced at a -0.42% to its one-year price target of 14.20. Comparatively, FRAC is -41.86% relative to its price target of 21.45. This suggests that FRAC is the better investment over the next year.
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. GME has a short ratio of 7.95 compared to a short interest of 5.28 for FRAC. This implies that the market is currently less bearish on the outlook for FRAC.Summary
Keane Group, Inc. (NYSE:FRAC) beats GameStop Corp. (NYSE:GME) on a total of 7 of the 14 factors compared between the two stocks. FRAC is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, GME is the cheaper of the two stocks on an earnings, book value and sales basis, FRAC is more undervalued relative to its price target. Finally, FRAC has better sentiment signals based on short interest.