The shares of CDK Global, Inc. have decreased by more than -20.19% this year alone. The shares recently went down by -0.44% or -$0.25 and now trades at $56.89. The shares of Chegg, Inc. (NYSE:CHGG), has jumped by 52.76% year to date as of 10/11/2018. The shares currently trade at $24.93 and have been able to report a change of -9.93% over the past one week.
The stock of CDK Global, Inc. and Chegg, Inc. 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.Next 5Y EPS Growth: 10.00% versus 30.00%
When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that CDK will grow it’s earning at a 10.00% annual rate in the next 5 years. This is in contrast to CHGG which will have a positive growth at a 30.00% annual rate. This means that the higher growth rate of CHGG implies a greater potential for capital appreciation over the years.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. CDK has an EBITDA margin of 25.35%, this implies that the underlying business of CDK is more profitable. The ROI of CDK is 20.10% while that of CHGG is -5.40%. These figures suggest that CDK ventures generate a higher ROI than that of CHGG.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, CDK’s free cash flow per share is a positive 3.86.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 CDK is 2.50 and that of CHGG is 10.10. This implies that it is easier for CDK to cover its immediate obligations over the next 12 months than CHGG.Valuation
CDK currently trades at a forward P/E of 12.44, and a P/S of 3.27 while CHGG trades at a forward P/E of 42.11, a P/B of 7.23, and a P/S of 9.82. This means that looking at the earnings, book values and sales basis, CDK 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 CDK is currently at a -26.69% to its one-year price target of 77.60. Looking at its rival pricing, CHGG is at a -17.8% relative to its price target of 30.33.
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), CDK is given a 1.80 while 2.50 placed for CHGG. This means that analysts are more bullish on the outlook for CHGG 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 CDK is 3.45 while that of CHGG is just 9.39. This means that analysts are more bullish on the forecast for CDK stock.
The stock of Chegg, Inc. defeats that of CDK Global, Inc. when the two are compared, with CHGG taking 2 out of the total factors that were been considered. CHGG 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, CHGG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CHGG is better on when it is viewed on short interest.