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Choosing Between Turtle Beach Corporation (HEAR) and New Age Beverages Corporation (NBEV)

Turtle Beach Corporation (NASDAQ:HEAR) shares are up more than 1191.39% this year and recently decreased -7.03% or -$1.77 to settle at $23.40. New Age Beverages Corporation (NASDAQ:NBEV), on the other hand, is down -21.66% year to date as of 09/11/2018. It currently trades at $1.70 and has returned 3.03% during the past week.

Turtle Beach Corporation (NASDAQ:HEAR) and New Age Beverages Corporation (NASDAQ:NBEV) are the two most active stocks in the Communication Equipment 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 HEAR to grow earnings at a 18.00% annual rate over the next 5 years.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Turtle Beach Corporation (HEAR) has an EBITDA margin of 16.47%. This suggests that HEAR underlying business is more profitable HEAR’s ROI is 21.30% while NBEV has a ROI of -10.00%. The interpretation is that HEAR’s business generates a higher return on investment than NBEV’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. HEAR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.53. Comparatively, NBEV’s free cash flow per share was -0.16. On a percent-of-sales basis, HEAR’s free cash flow was 0% while NBEV converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, HEAR 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. HEAR has a current ratio of 1.70 compared to 1.50 for NBEV. This means that HEAR can more easily cover its most immediate liabilities over the next twelve months. HEAR’s debt-to-equity ratio is 6.18 versus a D/E of 0.18 for NBEV. HEAR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

HEAR trades at a forward P/E of 12.60, a P/B of 63.24, and a P/S of 1.44, compared to a P/B of 1.27, and a P/S of 1.93 for NBEV. HEAR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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

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. HEAR is currently priced at a -39.61% to its one-year price target of 38.75. Comparatively, NBEV is -48.95% relative to its price target of 3.33. This suggests that NBEV is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. HEAR has a beta of 0.75 and NBEV’s beta is 3.64. HEAR’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. HEAR has a short ratio of 2.81 compared to a short interest of 4.39 for NBEV. This implies that the market is currently less bearish on the outlook for HEAR.

Summary

Turtle Beach Corporation (NASDAQ:HEAR) beats New Age Beverages Corporation (NASDAQ:NBEV) on a total of 10 of the 14 factors compared between the two stocks. HEAR is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, HEAR has better sentiment signals based on short interest.

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