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Dissecting the Numbers for Hortonworks, Inc. (HDP) and GNC Holdings, Inc. (GNC)

Hortonworks, Inc. (NASDAQ:HDP) shares are up more than 17.01% this year and recently increased 3.75% or $0.85 to settle at $23.53. GNC Holdings, Inc. (NYSE:GNC), on the other hand, is down -21.41% year to date as of 09/11/2018. It currently trades at $2.90 and has returned -5.84% during the past week.

Hortonworks, Inc. (NASDAQ:HDP) and GNC Holdings, Inc. (NYSE:GNC) are the two most active stocks in the Technical & System Software industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

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. Analysts expect HDP to grow earnings at a 20.00% 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 Return on Investment (ROI) to measure this. HDP’s ROI is 311.70% while GNC has a ROI of -15.80%. The interpretation is that HDP’s business generates a higher return on investment than GNC’s.

Cash Flow



Cash is king when it comes to investing. HDP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, GNC’s free cash flow per share was +0.23. On a percent-of-sales basis, HDP’s free cash flow was -0% while GNC converted 0.79% of its revenues into cash flow. This means that, for a given level of sales, GNC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. HDP has a current ratio of 1.00 compared to 1.50 for GNC. This means that GNC can more easily cover its most immediate liabilities over the next twelve months.

Valuation

HDP trades at a P/S of 6.17, compared to a forward P/E of 7.38, and a P/S of 0.10 for GNC. HDP is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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

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. HDP is currently priced at a -7.62% to its one-year price target of 25.47. Comparatively, GNC is -3.33% relative to its price target of 3.00. This suggests that HDP is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HDP has a beta of 1.47 and GNC’s beta is 0.59. GNC’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. HDP has a short ratio of 4.59 compared to a short interest of 14.39 for GNC. This implies that the market is currently less bearish on the outlook for HDP.

Summary

GNC Holdings, Inc. (NYSE:GNC) beats Hortonworks, Inc. (NASDAQ:HDP) on a total of 6 of the 13 factors compared between the two stocks. GNC is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, CSLT has better sentiment signals based on short interest.

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