Ladenburg Thalmann Financial Services Inc. (NYSE:LTS) shares are down more than -22.78% this year and recently decreased -4.31% or -$0.11 to settle at $2.44. CareDx, Inc (NASDAQ:CDNA), on the other hand, is up 239.92% year to date as of 09/11/2018. It currently trades at $24.95 and has returned 4.52% during the past week.
Ladenburg Thalmann Financial Services Inc. (NYSE:LTS) and CareDx, Inc (NASDAQ:CDNA) are the two most active stocks in the Investment Brokerage – National 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect LTS to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, CDNA is expected to grow at a 20.00% annual rate. All else equal, CDNA’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. Ladenburg Thalmann Financial Services Inc. (LTS) has an EBITDA margin of 4.84%. This suggests that LTS underlying business is more profitable LTS’s ROI is 5.60% while CDNA has a ROI of 193.20%. The interpretation is that CDNA’s business generates a higher return on investment than LTS’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. LTS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, CDNA’s free cash flow per share was -0.06. On a percent-of-sales basis, LTS’s free cash flow was 2.22% while CDNA converted -0% of its revenues into cash flow. This means that, for a given level of sales, LTS is able to generate more free cash flow for investors.Liquidity and Financial Risk
LTS’s debt-to-equity ratio is 0.36 versus a D/E of 0.46 for CDNA. CDNA is therefore the more solvent of the two companies, and has lower financial risk.
LTS trades at a P/B of 1.23, and a P/S of 0.43, compared to a forward P/E of 138.61, a P/B of 30.80, and a P/S of 15.94 for CDNA. LTS is the cheaper 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. LTS is currently priced at a -48.63% to its one-year price target of 4.75. Comparatively, CDNA is -5.24% relative to its price target of 26.33. This suggests that LTS is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. LTS has a beta of 1.73 and CDNA’s beta is 0.88. CDNA’s shares are therefore the less volatile of the two stocks.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. LTS has a short ratio of 2.69 compared to a short interest of 3.39 for CDNA. This implies that the market is currently less bearish on the outlook for LTS.Summary
Ladenburg Thalmann Financial Services Inc. (NYSE:LTS) beats CareDx, Inc (NASDAQ:CDNA) on a total of 10 of the 14 factors compared between the two stocks. LTS is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, LTS is the cheaper of the two stocks on an earnings, book value and sales basis, LTS is more undervalued relative to its price target. Finally, LTS has better sentiment signals based on short interest.