Pier 1 Imports, Inc. (NYSE:PIR) shares are down more than -55.80% this year and recently decreased -0.54% or -$0.01 to settle at $1.83. Builders FirstSource, Inc. (NASDAQ:BLDR), on the other hand, is down -22.85% year to date as of 09/11/2018. It currently trades at $16.81 and has returned 8.66% during the past week.

Pier 1 Imports, Inc. (NYSE:PIR) and Builders FirstSource, Inc. (NASDAQ:BLDR) are the two most active stocks in the Specialty Retail, Other 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**

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect PIR to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, BLDR is expected to grow at a 17.40% annual rate. All else equal, BLDR’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. , compared to an EBITDA margin of 5.83% for Builders FirstSource, Inc. (BLDR). PIR’s ROI is 4.40% while BLDR has a ROI of 12.10%. The interpretation is that BLDR’s business generates a higher return on investment than PIR’s.

**Cash Flow**

The amount of free cash flow available to investors is ultimately what determines the value of a stock. PIR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, BLDR’s free cash flow per share was -0.18. On a percent-of-sales basis, PIR’s free cash flow was 1.24% while BLDR converted -0.29% of its revenues into cash flow. This means that, for a given level of sales, PIR is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Balance sheet risk is one of the biggest factors to consider before investing. PIR has a current ratio of 2.10 compared to 2.00 for BLDR. This means that PIR can more easily cover its most immediate liabilities over the next twelve months. PIR’s debt-to-equity ratio is 0.78 versus a D/E of 4.31 for BLDR. BLDR is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

PIR trades at a forward P/E of 114.38, a P/B of 0.57, and a P/S of 0.09, compared to a forward P/E of 7.59, a P/B of 4.17, and a P/S of 0.26 for BLDR. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. PIR is currently priced at a -21.79% to its one-year price target of 2.34. Comparatively, BLDR is -27.76% relative to its price target of 23.27. This suggests that BLDR is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. PIR has a beta of 1.49 and BLDR’s beta is 2.00. PIR’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. PIR has a short ratio of 9.20 compared to a short interest of 2.87 for BLDR. This implies that the market is currently less bearish on the outlook for BLDR.

**Summary**

Builders FirstSource, Inc. (NASDAQ:BLDR) beats Pier 1 Imports, Inc. (NYSE:PIR) on a total of 7 of the 14 factors compared between the two stocks. BLDR has higher cash flow per share, is more profitable and generates a higher return on investment. BLDR is more undervalued relative to its price target. Finally, BLDR has better sentiment signals based on short interest.