Papa John’s International, Inc. (NASDAQ:PZZA) shares are down more than -16.68% this year and recently increased 0.54% or $0.25 to settle at $46.75. Enphase Energy, Inc. (NASDAQ:ENPH), on the other hand, is up 85.48% year to date as of 09/11/2018. It currently trades at $4.47 and has returned -8.59% during the past week.
Papa John’s International, Inc. (NASDAQ:PZZA) and Enphase Energy, Inc. (NASDAQ:ENPH) are the two most active stocks in the Specialty Eateries industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PZZA to grow earnings at a 3.90% annual rate over the next 5 years.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Papa John’s International, Inc. (PZZA) has an EBITDA margin of 9.76%. This suggests that PZZA underlying business is more profitable PZZA’s ROI is 31.30% while ENPH has a ROI of -12.50%. The interpretation is that PZZA’s business generates a higher return on investment than ENPH’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PZZA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.43. Comparatively, ENPH’s free cash flow per share was +0.04. On a percent-of-sales basis, PZZA’s free cash flow was 0.76% while ENPH converted 0% of its revenues into cash flow. This means that, for a given level of sales, PZZA 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. PZZA has a current ratio of 1.10 compared to 1.40 for ENPH. This means that ENPH can more easily cover its most immediate liabilities over the next twelve months.Valuation
PZZA trades at a forward P/E of 29.04, and a P/S of 0.86, compared to a forward P/E of 16.08, and a P/S of 1.42 for ENPH. PZZA 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
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. PZZA is currently priced at a -8.48% to its one-year price target of 51.08. Comparatively, ENPH is -40.08% relative to its price target of 7.46. This suggests that ENPH is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. PZZA has a beta of 0.45 and ENPH’s beta is 0.33. ENPH’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. PZZA has a short ratio of 2.54 compared to a short interest of 4.94 for ENPH. This implies that the market is currently less bearish on the outlook for PZZA.Summary
Papa John’s International, Inc. (NASDAQ:PZZA) beats Enphase Energy, Inc. (NASDAQ:ENPH) on a total of 8 of the 13 factors compared between the two stocks. PZZA is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, PZZA has better sentiment signals based on short interest.