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A Side-by-side Analysis of Viavi Solutions Inc. (VIAV) and athenahealth, Inc. (ATHN)

Viavi Solutions Inc. (NASDAQ:VIAV) shares are up more than 21.97% this year and recently increased 4.41% or $0.45 to settle at $10.66. athenahealth, Inc. (NASDAQ:ATHN), on the other hand, is up 0.01% year to date as of 12/06/2018. It currently trades at $133.05 and has returned 0.34% during the past week.

Viavi Solutions Inc. (NASDAQ:VIAV) and athenahealth, Inc. (NASDAQ:ATHN) are the two most active stocks based on recent trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VIAV to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, ATHN is expected to grow at a 29.32% annual rate. All else equal, ATHN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 15.48% for athenahealth, Inc. (ATHN). VIAV’s ROI is -0.70% while ATHN has a ROI of 5.40%. The interpretation is that ATHN’s business generates a higher return on investment than VIAV’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. VIAV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.07. Comparatively, ATHN’s free cash flow per share was +2.50. On a percent-of-sales basis, VIAV’s free cash flow was 0% while ATHN converted 8.32% of its revenues into cash flow. This means that, for a given level of sales, ATHN 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. VIAV has a current ratio of 2.40 compared to 2.70 for ATHN. This means that ATHN can more easily cover its most immediate liabilities over the next twelve months. VIAV’s debt-to-equity ratio is 1.03 versus a D/E of 0.24 for ATHN. VIAV is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VIAV trades at a forward P/E of 15.58, a P/B of 3.42, and a P/S of 2.54, compared to a forward P/E of 27.63, a P/B of 5.05, and a P/S of 4.10 for ATHN. VIAV is the cheaper of the two stocks on an earnings, book value and sales basis. 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. VIAV is currently priced at a -21.21% to its one-year price target of 13.53. Comparatively, ATHN is -5.6% relative to its price target of 140.95. This suggests that VIAV 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. VIAV has a beta of 0.97 and ATHN’s beta is 0.80. ATHN’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. VIAV has a short ratio of 2.92 compared to a short interest of 1.85 for ATHN. This implies that the market is currently less bearish on the outlook for ATHN.

Summary

athenahealth, Inc. (NASDAQ:ATHN) beats Viavi Solutions Inc. (NASDAQ:VIAV) on a total of 9 of the 14 factors compared between the two stocks. ATHN , 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, VIAV is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, ATHN has better sentiment signals based on short interest.

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