Revlon, Inc. (NYSE:REV) and Inter Parfums, Inc. (NASDAQ:IPAR) are the two most active stocks in the Personal Products industry based on today’s 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect REV to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, IPAR is expected to grow at a 12.00% annual rate. All else equal, IPAR’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. Revlon, Inc. (REV) has an EBITDA margin of 5.99%, compared to an EBITDA margin of 14.66% for Inter Parfums, Inc. (IPAR). This suggests that IPAR underlying business is more profitable. REV’s ROI is 5.40% while IPAR has a ROI of 9.60%. The interpretation is that IPAR’s business generates a higher return on investment than REV’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. REV’s free cash flow (“FCF”) per share for the trailing twelve months was -1.47. Comparatively, IPAR’s free cash flow per share was +0.20. On a percent-of-sales basis, REV’s free cash flow was -3.31% while IPAR converted 0% of its revenues into cash flow. This means that, for a given level of sales, IPAR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. REV has a current ratio of 1.40 compared to 3.40 for IPAR. This means that IPAR can more easily cover its most immediate liabilities over the next twelve months.
REV trades at a forward P/S of 0.37, compared to a forward P/E of 26.89, a P/B of 2.97, and a P/S of 2.17 for IPAR. REV 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”. REV is currently priced at a -56.43% to its one-year price target of $42.00. Comparatively, IPAR is -8.23% relative to its price target of $42.17. This suggests that REV is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for REV and 1.90 for IPAR, which implies that analysts are more bullish on the outlook for REV.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. REV has a beta of 0.65 and IPAR’s beta is 1.79. REV’s shares are therefore the less volatile of the two stocks.
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. REV has a short ratio of 3.91 compared to a short interest of 1.19 for IPAR. This implies that the market is currently less bearish on the outlook for IPAR.
Inter Parfums, Inc. (NASDAQ:IPAR) beats Revlon, Inc. (NYSE:REV) on a total of 8 of the 11 factors compared between the two stocks. IPAR , is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, IPAR has better sentiment signals based on short interest.