Expedia Group, Inc. (NASDAQ:EXPE) shares are up more than 10.83% this year and recently increased 0.78% or $1.03 to settle at $132.74. Sally Beauty Holdings, Inc. (NYSE:SBH), on the other hand, is down -22.71% year to date as of 08/09/2018. It currently trades at $14.50 and has returned 2.76% during the past week.
Expedia Group, Inc. (NASDAQ:EXPE) and Sally Beauty Holdings, Inc. (NYSE:SBH) are the two most active stocks in the Lodging 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.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 EXPE to grow earnings at a 16.77% annual rate over the next 5 years. Comparatively, SBH is expected to grow at a 7.60% annual rate. All else equal, EXPE’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 13.92% for Sally Beauty Holdings, Inc. (SBH). EXPE’s ROI is 6.40% while SBH has a ROI of 23.10%. The interpretation is that SBH’s business generates a higher return on investment than EXPE’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. EXPE’s free cash flow (“FCF”) per share for the trailing twelve months was +3.61. Comparatively, SBH’s free cash flow per share was +0.65. On a percent-of-sales basis, EXPE’s free cash flow was 5.37% while SBH converted 1.98% of its revenues into cash flow. This means that, for a given level of sales, EXPE is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. EXPE has a current ratio of 0.70 compared to 2.10 for SBH. This means that SBH can more easily cover its most immediate liabilities over the next twelve months.Valuation
EXPE trades at a forward P/E of 21.25, a P/B of 5.02, and a P/S of 1.88, compared to a forward P/E of 6.57, and a P/S of 0.52 for SBH. EXPE is the expensive 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
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. EXPE is currently priced at a -11.99% to its one-year price target of 150.83. Comparatively, SBH is -18.77% relative to its price target of 17.85. This suggests that SBH is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. EXPE has a beta of 1.41 and SBH’s beta is 0.24. SBH’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. EXPE has a short ratio of 6.79 compared to a short interest of 12.76 for SBH. This implies that the market is currently less bearish on the outlook for EXPE.Summary
Sally Beauty Holdings, Inc. (NYSE:SBH) beats Expedia Group, Inc. (NASDAQ:EXPE) on a total of 9 of the 14 factors compared between the two stocks. SBH is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, SBH is the cheaper of the two stocks on an earnings, book value and sales basis, SBH is more undervalued relative to its price target. Finally, WTW has better sentiment signals based on short interest.