Earnings

Which is more compelling pick right now? – Stitch Fix, Inc. (SFIX), LKQ Corporation (LKQ)

The shares of Stitch Fix, Inc. have decreased by more than -4.76% this year alone. The shares recently went up by 3.75% or $0.89 and now trades at $24.60. The shares of LKQ Corporation (NASDAQ:LKQ), has slumped by -30.37% year to date as of 10/11/2018. The shares currently trade at $28.32 and have been able to report a change of -6.66% over the past one week.

The stock of Stitch Fix, Inc. and LKQ Corporation were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. SFIX has an EBITDA margin of 5.32%, this implies that the underlying business of LKQ is more profitable. The ROI of SFIX is 11.90% while that of LKQ is 7.10%. These figures suggest that SFIX ventures generate a higher ROI than that of LKQ.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, SFIX’s free cash flow per share is a positive 0.48, while that of LKQ is positive 1.34.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for SFIX is 2.90 and that of LKQ is 2.60. This implies that it is easier for SFIX to cover its immediate obligations over the next 12 months than LKQ. The debt ratio of SFIX is 0.00 compared to 0.94 for LKQ. LKQ can be able to settle its long-term debts and thus is a lower financial risk than SFIX.

Valuation

SFIX currently trades at a forward P/E of 92.83, a P/B of 7.88, and a P/S of 2.14 while LKQ trades at a forward P/E of 10.80, a P/B of 1.88, and a P/S of 0.85. This means that looking at the earnings, book values and sales basis, LKQ is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of SFIX is currently at a -33.91% to its one-year price target of 37.22. Looking at its rival pricing, LKQ is at a -34.58% relative to its price target of 43.29.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), SFIX is given a 2.50 while 1.50 placed for LKQ. This means that analysts are more bullish on the outlook for SFIX stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for SFIX is 1.63 while that of LKQ is just 3.28. This means that analysts are more bullish on the forecast for SFIX stock.

Conclusion

The stock of Stitch Fix, Inc. defeats that of LKQ Corporation when the two are compared, with SFIX taking 5 out of the total factors that were been considered. SFIX happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, SFIX is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for SFIX is better on when it is viewed on short interest.

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