Global

Choosing Between Social Capital Hedosophia Holdings Corp. (IPOA) and Engility Holdings, Inc. (EGL)

Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) shares are down more than -1.59% this year and recently decreased -0.10% or -$0.01 to settle at $9.88. Engility Holdings, Inc. (NYSE:EGL), on the other hand, is up 25.66% year to date as of 09/11/2018. It currently trades at $35.65 and has returned 3.15% during the past week.

Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) and Engility Holdings, Inc. (NYSE:EGL) are the two most active stocks in the Conglomerates 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

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, EGL is expected to grow at a 5.00% annual rate. All else equal, EGL’s higher growth rate would imply a greater potential for capital appreciation.

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 9.12% for Engility Holdings, Inc. (EGL).

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. IPOA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, EGL’s free cash flow per share was +1.17.

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. IPOA has a current ratio of 1.40 compared to 1.40 for EGL. This means that IPOA can more easily cover its most immediate liabilities over the next twelve months. IPOA’s debt-to-equity ratio is 0.00 versus a D/E of 1.34 for EGL. EGL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

IPOA trades at a P/B of 39.52, compared to a forward P/E of 16.57, a P/B of 1.91, and a P/S of 0.69 for EGL. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target.

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. IPOA has a short ratio of 0.10 compared to a short interest of 1.56 for EGL. This implies that the market is currently less bearish on the outlook for IPOA.

Summary




Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) beats Engility Holdings, Inc. (NYSE:EGL) on a total of 7 of the 12 factors compared between the two stocks. IPOA higher liquidity and has lower financial risk. In terms of valuation, IPOA is the cheaper of the two stocks on an earnings and sales basis, Finally, IPOA has better sentiment signals based on short interest.

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