GoPro, Inc. (NASDAQ:GPRO) shares are down more than -15.59% this year and recently increased 1.43% or $0.09 to settle at $6.39. Sally Beauty Holdings, Inc. (NYSE:SBH), on the other hand, is down -10.45% year to date as of 09/11/2018. It currently trades at $16.80 and has returned 8.32% during the past week.
GoPro, Inc. (NASDAQ:GPRO) and Sally Beauty Holdings, Inc. (NYSE:SBH) are the two most active stocks in the Photographic Equipment & Supplies 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect GPRO to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, SBH is expected to grow at a 6.38% annual rate. All else equal, GPRO’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 13.92% for Sally Beauty Holdings, Inc. (SBH). GPRO’s ROI is -22.20% while SBH has a ROI of 23.10%. The interpretation is that SBH’s business generates a higher return on investment than GPRO’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GPRO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, SBH’s free cash flow per share was +0.65. On a percent-of-sales basis, GPRO’s free cash flow was -0.13% while SBH converted 1.98% of its revenues into cash flow. This means that, for a given level of sales, SBH 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. GPRO has a current ratio of 1.50 compared to 2.10 for SBH. This means that SBH can more easily cover its most immediate liabilities over the next twelve months.Valuation
GPRO trades at a forward P/E of 46.30, a P/B of 4.73, and a P/S of 0.85, compared to a forward P/E of 7.95, and a P/S of 0.50 for SBH. GPRO is the expensive 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
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. GPRO is currently priced at a 4.93% to its one-year price target of 6.09. Comparatively, SBH is 17.24% relative to its price target of 14.33. This suggests that GPRO 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. GPRO has a beta of 0.22 and SBH’s beta is 0.18. SBH’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. GPRO has a short ratio of 6.94 compared to a short interest of 12.86 for SBH. This implies that the market is currently less bearish on the outlook for GPRO.Summary
Sally Beauty Holdings, Inc. (NYSE:SBH) beats GoPro, Inc. (NASDAQ:GPRO) on a total of 10 of the 14 factors compared between the two stocks. SBH is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, SBH is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, GLUU has better sentiment signals based on short interest.