Earnings

Financial Metrics You Should Care About: Shopify Inc. (SHOP), Live Nation Entertainment, Inc. (LYV)

The shares of Shopify Inc. have increased by more than 55.35% this year alone. The shares recently went up by 4.46% or $6.7 and now trades at $156.90. The shares of Live Nation Entertainment, Inc. (NYSE:LYV), has jumped by 32.72% year to date as of 12/06/2018. The shares currently trade at $56.50 and have been able to report a change of 2.49% over the past one week.

The stock of Shopify Inc. and Live Nation Entertainment, 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.

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. The ROI of SHOP is -4.80% while that of LYV is 1.50%. These figures suggest that LYV ventures generate a higher ROI than that of SHOP.

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, SHOP’s free cash flow per share is a positive -0, while that of LYV is negative -3.06.

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 SHOP is 11.80 and that of LYV is 1.10. This implies that it is easier for SHOP to cover its immediate obligations over the next 12 months than LYV. The debt ratio of SHOP is 0.01 compared to 2.14 for LYV. LYV can be able to settle its long-term debts and thus is a lower financial risk than SHOP.

Valuation

SHOP currently trades at a forward P/E of 226.41, a P/B of 10.01, and a P/S of 17.21 while LYV trades at a forward P/E of 144.13, a P/B of 8.90, and a P/S of 1.11. This means that looking at the earnings, book values and sales basis, LYV 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 SHOP is currently at a -3.59% to its one-year price target of 162.74. Looking at its rival pricing, LYV is at a -5.55% relative to its price target of 59.82.




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), SHOP is given a 2.10 while 1.60 placed for LYV. This means that analysts are more bullish on the outlook for SHOP 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 SHOP is 6.06 while that of LYV is just 7.13. This means that analysts are more bullish on the forecast for SHOP stock.

Conclusion

The stock of Shopify Inc. defeats that of Live Nation Entertainment, Inc. when the two are compared, with SHOP taking 5 out of the total factors that were been considered. SHOP 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, SHOP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for SHOP is better on when it is viewed on short interest.

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