Masco Corporation (NYSE:MAS) shares are down more than -12.29% this year and recently increased 0.52% or $0.2 to settle at $38.54. Stitch Fix, Inc. (NASDAQ:SFIX), on the other hand, is up 32.25% year to date as of 08/16/2018. It currently trades at $34.16 and has returned 7.59% during the past week.
Masco Corporation (NYSE:MAS) and Stitch Fix, Inc. (NASDAQ:SFIX) are the two most active stocks in the General Building Materials 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect MAS to grow earnings at a 14.77% annual rate over the next 5 years.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 5.88% for Stitch Fix, Inc. (SFIX). MAS’s ROI is 27.40% while SFIX has a ROI of 29.50%. The interpretation is that SFIX’s business generates a higher return on investment than MAS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. MAS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.82. Comparatively, SFIX’s free cash flow per share was +0.13. On a percent-of-sales basis, MAS’s free cash flow was 3.3% while SFIX converted 0% of its revenues into cash flow. This means that, for a given level of sales, MAS 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. MAS has a current ratio of 1.70 compared to 2.70 for SFIX. This means that SFIX can more easily cover its most immediate liabilities over the next twelve months.Valuation
MAS trades at a forward P/E of 13.28, and a P/S of 1.51, compared to a forward P/E of 179.79, a P/B of 11.62, and a P/S of 2.58 for SFIX. MAS 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. MAS is currently priced at a -17.38% to its one-year price target of 46.65. Comparatively, SFIX is 14.71% relative to its price target of 29.78. This suggests that MAS 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. MAS has a short ratio of 2.59 compared to a short interest of 2.32 for SFIX. This implies that the market is currently less bearish on the outlook for SFIX.Summary
Masco Corporation (NYSE:MAS) beats Stitch Fix, Inc. (NASDAQ:SFIX) on a total of 9 of the 14 factors compared between the two stocks. MAS is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, MAS is the cheaper of the two stocks on an earnings, book value and sales basis, MAS is more undervalued relative to its price target. Finally, CL has better sentiment signals based on short interest.