Global

Dissecting the Numbers for Hilton Grand Vacations Inc. (HGV) and BJ’s Wholesale Club Holdings, Inc. (BJ)

Hilton Grand Vacations Inc. (NYSE:HGV) shares are down more than -31.90% this year and recently decreased -2.16% or -$0.63 to settle at $28.57. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), on the other hand, is up 7.36% year to date as of 12/06/2018. It currently trades at $23.62 and has returned -0.67% during the past week.

Hilton Grand Vacations Inc. (NYSE:HGV) and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) are the two most active stocks based on recent trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect HGV to grow earnings at a 16.89% annual rate over the next 5 years. Comparatively, BJ is expected to grow at a 41.42% annual rate. All else equal, BJ’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. EBITDA margin of 3.78% for BJ’s Wholesale Club Holdings, Inc. (BJ). HGV’s ROI is 14.00% while BJ has a ROI of 12.70%. The interpretation is that HGV’s business generates a higher return on investment than BJ’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. HGV’s free cash flow (“FCF”) per share for the trailing twelve months was -0.82. Comparatively, BJ’s free cash flow per share was -0.06. On a percent-of-sales basis, HGV’s free cash flow was -4.64% while BJ converted -0.07% of its revenues into cash flow. This means that, for a given level of sales, BJ is able to generate more free cash flow for investors.

Valuation

HGV trades at a forward P/E of 9.93, a P/B of 4.93, and a P/S of 1.54, compared to a forward P/E of 16.14, and a P/S of 0.24 for BJ. HGV is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. HGV is currently priced at a -28.97% to its one-year price target of 40.22. Comparatively, BJ is -18.33% relative to its price target of 28.92. This suggests that HGV 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. HGV has a short ratio of 4.10 compared to a short interest of 1.80 for BJ. This implies that the market is currently less bearish on the outlook for BJ.

Summary

BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) beats Hilton Grand Vacations Inc. (NYSE:HGV) on a total of 9 of the 14 factors compared between the two stocks. BJ generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, BJ is the cheaper of the two stocks on book value and sales basis, Finally, BJ has better sentiment signals based on short interest.

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