SolarWinds Corporation (NYSE:SWI) shares are up more than 7.12% this year and recently increased 1.13% or $0.18 to settle at $16.10. National Vision Holdings, Inc. (NASDAQ:EYE), on the other hand, is down -12.53% year to date as of 12/06/2018. It currently trades at $35.52 and has returned -5.91% during the past week.
SolarWinds Corporation (NYSE:SWI) and National Vision Holdings, Inc. (NASDAQ:EYE) 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
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect SWI to grow earnings at a 16.73% annual rate over the next 5 years. Comparatively, EYE is expected to grow at a 22.90% annual rate. All else equal, EYE’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. SolarWinds Corporation (SWI) has an EBITDA margin of 33.43%. This suggests that SWI underlying business is more profitable SWI’s ROI is 1.00% while EYE has a ROI of 5.10%. The interpretation is that EYE’s business generates a higher return on investment than SWI’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SWI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.70. Comparatively, EYE’s free cash flow per share was +0.07. On a percent-of-sales basis, SWI’s free cash flow was 0.05% while EYE converted 0.39% of its revenues into cash flow. This means that, for a given level of sales, EYE 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. SWI has a current ratio of 1.20 compared to 1.10 for EYE. This means that SWI can more easily cover its most immediate liabilities over the next twelve months. SWI’s debt-to-equity ratio is 0.97 versus a D/E of 0.76 for EYE. SWI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SWI trades at a forward P/E of 20.67, and a P/S of 5.92, compared to a forward P/E of 42.80, a P/B of 3.57, and a P/S of 1.86 for EYE. 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. SWI is currently priced at a -14.95% to its one-year price target of 18.93. Comparatively, EYE is -25.43% relative to its price target of 47.63. This suggests that EYE is the better investment over the next year.
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. SWI has a short ratio of 0.97 compared to a short interest of 4.73 for EYE. This implies that the market is currently less bearish on the outlook for SWI.Summary
National Vision Holdings, Inc. (NASDAQ:EYE) beats SolarWinds Corporation (NYSE:SWI) on a total of 7 of the 14 factors compared between the two stocks. EYE is more profitable, generates a higher return on investment, has a higher cash conversion rate and has lower financial risk. EYE is more undervalued relative to its price target. Finally, ITG has better sentiment signals based on short interest.