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Choosing Between Gannett Co., Inc. (GCI) and Rapid7, Inc. (RPD)

Gannett Co., Inc. (NYSE:GCI) shares are down more than -17.60% this year and recently decreased -0.21% or -$0.02 to settle at $9.55. Rapid7, Inc. (NASDAQ:RPD), on the other hand, is up 102.84% year to date as of 09/11/2018. It currently trades at $37.85 and has returned -2.57% during the past week.

Gannett Co., Inc. (NYSE:GCI) and Rapid7, Inc. (NASDAQ:RPD) are the two most active stocks in the Publishing – Newspapers industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

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. Comparatively, RPD is expected to grow at a -0.53% annual rate. All else equal, GCI’s higher growth rate would imply a greater potential for capital appreciation.

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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Gannett Co., Inc. (GCI) has an EBITDA margin of 8.31%. This suggests that GCI underlying business is more profitable GCI’s ROI is 5.60% while RPD has a ROI of -193.20%. The interpretation is that GCI’s business generates a higher return on investment than RPD’s.

Cash Flow



Cash is king when it comes to investing. GCI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, RPD’s free cash flow per share was -0.27. On a percent-of-sales basis, GCI’s free cash flow was -0.5% while RPD converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, RPD is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. GCI has a current ratio of 1.20 compared to 1.00 for RPD. This means that GCI can more easily cover its most immediate liabilities over the next twelve months. GCI’s debt-to-equity ratio is 0.30 versus a D/E of 0.00 for RPD. GCI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

GCI trades at a forward P/E of 9.08, a P/B of 0.95, and a P/S of 0.37, compared to a P/B of 25.23, and a P/S of 7.74 for RPD. 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. GCI is currently priced at a -16.96% to its one-year price target of 11.50. Comparatively, RPD is 2.1% relative to its price target of 37.07. This suggests that GCI is the better investment over the next year.

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. GCI has a short ratio of 18.87 compared to a short interest of 3.63 for RPD. This implies that the market is currently less bearish on the outlook for RPD.

Summary




Gannett Co., Inc. (NYSE:GCI) beats Rapid7, Inc. (NASDAQ:RPD) on a total of 8 of the 14 factors compared between the two stocks. GCI is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, GCI is the cheaper of the two stocks on book value and sales basis, GCI is more undervalued relative to its price target. Finally, MOBL has better sentiment signals based on short interest.

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