Sunrun Inc. (NASDAQ:RUN) shares are up more than 115.25% this year and recently increased 6.28% or $0.75 to settle at $12.70. Chico’s FAS, Inc. (NYSE:CHS), on the other hand, is up 0.11% year to date as of 09/11/2018. It currently trades at $8.83 and has returned -1.67% during the past week.
Sunrun Inc. (NASDAQ:RUN) and Chico’s FAS, Inc. (NYSE:CHS) are the two most active stocks in the Semiconductor – Specialized 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 RUN to grow earnings at a 2.63% annual rate over the next 5 years. Comparatively, CHS is expected to grow at a 15.00% annual rate. All else equal, CHS’s higher growth rate would imply a greater potential for capital appreciation.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 EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 9.93% for Chico’s FAS, Inc. (CHS). RUN’s ROI is -7.80% while CHS has a ROI of 12.80%. The interpretation is that CHS’s business generates a higher return on investment than RUN’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. RUN’s free cash flow (“FCF”) per share for the trailing twelve months was -2.14. Comparatively, CHS’s free cash flow per share was +0.14. On a percent-of-sales basis, RUN’s free cash flow was -0.04% while CHS converted 0.77% of its revenues into cash flow. This means that, for a given level of sales, CHS is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. RUN has a current ratio of 1.50 compared to 2.00 for CHS. This means that CHS can more easily cover its most immediate liabilities over the next twelve months. RUN’s debt-to-equity ratio is 1.85 versus a D/E of 0.10 for CHS. RUN is therefore the more solvent of the two companies, and has lower financial risk.Valuation
RUN trades at a forward P/E of 13.70, a P/B of 1.45, and a P/S of 2.35, compared to a forward P/E of 13.48, a P/B of 1.72, and a P/S of 0.51 for CHS. RUN is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. RUN is currently priced at a -23.82% to its one-year price target of 16.67. Comparatively, CHS is -2.86% relative to its price target of 9.09. This suggests that RUN is the better investment over the next year.
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. RUN has a short ratio of 4.88 compared to a short interest of 4.54 for CHS. This implies that the market is currently less bearish on the outlook for CHS.Summary
Chico’s FAS, Inc. (NYSE:CHS) beats Sunrun Inc. (NASDAQ:RUN) on a total of 10 of the 14 factors compared between the two stocks. CHS , is more profitable, 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, CHS is the cheaper of the two stocks on an earnings and sales basis, Finally, CHS has better sentiment signals based on short interest.