TransEnterix, Inc. (NYSE:TRXC) shares are up more than 148.19% this year and recently increased 1.27% or $0.06 to settle at $4.79. J. C. Penney Company, Inc. (NYSE:JCP), on the other hand, is down -24.68% year to date as of 07/17/2018. It currently trades at $2.38 and has returned -0.83% during the past week.
TransEnterix, Inc. (NYSE:TRXC) and J. C. Penney Company, Inc. (NYSE:JCP) are the two most active stocks in the Medical Instruments & Supplies industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 6.19% for J. C. Penney Company, Inc. (JCP). TRXC’s ROI is -30.50% while JCP has a ROI of 2.40%. The interpretation is that JCP’s business generates a higher return on investment than TRXC’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. TRXC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, JCP’s free cash flow per share was -1.47. On a percent-of-sales basis, TRXC’s free cash flow was -0.17% while JCP converted -3.69% of its revenues into cash flow. This means that, for a given level of sales, TRXC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. TRXC has a current ratio of 5.40 compared to 1.70 for JCP. This means that TRXC can more easily cover its most immediate liabilities over the next twelve months. TRXC’s debt-to-equity ratio is 0.07 versus a D/E of 3.35 for JCP. JCP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TRXC trades at a P/B of 5.10, and a P/S of 92.69, compared to a forward P/E of 15.06, a P/B of 0.57, and a P/S of 0.06 for JCP. TRXC 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. TRXC is currently priced at a 6.44% to its one-year price target of 4.50. Comparatively, JCP is -28.31% relative to its price target of 3.32. This suggests that JCP 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. TRXC has a beta of 0.67 and JCP’s beta is 0.83. TRXC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. TRXC has a short ratio of 4.81 compared to a short interest of 8.35 for JCP. This implies that the market is currently less bearish on the outlook for TRXC.Summary
TransEnterix, Inc. (NYSE:TRXC) beats J. C. Penney Company, Inc. (NYSE:JCP) on a total of 8 of the 14 factors compared between the two stocks. TRXC has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, TRXC has better sentiment signals based on short interest.