Flex Ltd. (NASDAQ:FLEX) shares are up more than 55.32% this year and recently increased 0.77% or $0.09 to settle at $11.82. Tivity Health, Inc. (NASDAQ:TVTY), on the other hand, is down -36.60% year to date as of 10/29/2019. It currently trades at $15.73 and has returned -3.67% during the past week.
Flex Ltd. (NASDAQ:FLEX) and Tivity Health, Inc. (NASDAQ:TVTY) are the two most active stocks in the Printed Circuit Boards industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FLEX to grow earnings at a 17.10% annual rate over the next 5 years. Comparatively, TVTY is expected to grow at a 10.00% annual rate. All else equal, FLEX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 21.09% for Tivity Health, Inc. (TVTY). FLEX’s ROI is 4.60% while TVTY has a ROI of 26.70%. The interpretation is that TVTY’s business generates a higher return on investment than FLEX’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FLEX’s free cash flow (“FCF”) per share for the trailing twelve months was -2.13. Comparatively, TVTY’s free cash flow per share was +0.81. On a percent-of-sales basis, FLEX’s free cash flow was -4.18% while TVTY converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, TVTY 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. FLEX has a current ratio of 1.30 compared to 0.90 for TVTY. This means that FLEX can more easily cover its most immediate liabilities over the next twelve months. FLEX’s debt-to-equity ratio is 1.08 versus a D/E of 2.00 for TVTY. TVTY is therefore the more solvent of the two companies, and has lower financial risk.
FLEX trades at a forward P/E of 8.44, a P/B of 2.02, and a P/S of 0.23, compared to a forward P/E of 6.83, a P/B of 1.42, and a P/S of 0.88 for TVTY. FLEX is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. FLEX is currently priced at a -13.34% to its one-year price target of 13.64. Comparatively, TVTY is -49.26% relative to its price target of 31.00. This suggests that TVTY is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. FLEX has a beta of 1.84 and TVTY’s beta is 1.02. TVTY’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. FLEX has a short ratio of 1.60 compared to a short interest of 22.95 for TVTY. This implies that the market is currently less bearish on the outlook for FLEX.
Tivity Health, Inc. (NASDAQ:TVTY) beats Flex Ltd. (NASDAQ:FLEX) on a total of 9 of the 14 factors compared between the two stocks. TVTY is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, TVTY is the cheaper of the two stocks on an earnings and book value, TVTY is more undervalued relative to its price target.