Planet Fitness, Inc. (NYSE:PLNT) shares are up more than 62.37% this year and recently increased 1.08% or $0.6 to settle at $56.23. Covanta Holding Corporation (NYSE:CVA), on the other hand, is down -6.51% year to date as of 12/06/2018. It currently trades at $15.80 and has returned -3.30% during the past week.
Planet Fitness, Inc. (NYSE:PLNT) and Covanta Holding Corporation (NYSE:CVA) are the two most active stocks based on recent trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PLNT to grow earnings at a 28.20% annual rate over the next 5 years.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., compared to an EBITDA margin of 1.08% for Covanta Holding Corporation (CVA). PLNT’s ROI is 18.60% while CVA has a ROI of 0.80%. The interpretation is that PLNT’s business generates a higher return on investment than CVA’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PLNT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.59. Comparatively, CVA’s free cash flow per share was +0.18. On a percent-of-sales basis, PLNT’s free cash flow was 0.01% while CVA converted 1.35% of its revenues into cash flow. This means that, for a given level of sales, CVA is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. PLNT has a current ratio of 5.30 compared to 1.20 for CVA. This means that PLNT can more easily cover its most immediate liabilities over the next twelve months.Valuation
PLNT trades at a forward P/E of 39.60, and a P/S of 10.45, compared to a forward P/E of 126.40, a P/B of 4.07, and a P/S of 1.11 for CVA. 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. PLNT is currently priced at a -1.21% to its one-year price target of 56.92. Comparatively, CVA is -8.72% relative to its price target of 17.31. This suggests that CVA is the better investment over the next year.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. PLNT has a short ratio of 6.43 compared to a short interest of 7.89 for CVA. This implies that the market is currently less bearish on the outlook for PLNT.Summary
Planet Fitness, Inc. (NYSE:PLNT) beats Covanta Holding Corporation (NYSE:CVA) on a total of 10 of the 14 factors compared between the two stocks. PLNT is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, PLNT is the cheaper of the two stocks on an earnings and book value, Finally, PLNT has better sentiment signals based on short interest.