Carriage Services, Inc. (NYSE:CSV) and Regis Corporation (NYSE:RGS) are the two most active stocks in the Personal Services 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CSV to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, RGS is expected to grow at a 8.00% annual rate. All else equal, CSV’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. Carriage Services, Inc. (CSV) has an EBITDA margin of 20.63%, compared to an EBITDA margin of 4.58% for Regis Corporation (RGS). This suggests that CSV underlying business is more profitable. CSV’s ROI is 7.00% while RGS has a ROI of 1.30%. The interpretation is that CSV’s business generates a higher return on investment than RGS’s.
The value of a stock is simply the present value of its future free cash flows. CSV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.34. Comparatively, RGS’s free cash flow per share was +0.26. On a percent-of-sales basis, CSV’s free cash flow was 0% while RGS converted 0.67% of its revenues into cash flow. This means that, for a given level of sales, RGS 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. CSV has a current ratio of 0.70 compared to 2.00 for RGS. This means that RGS can more easily cover its most immediate liabilities over the next twelve months. CSV’s debt-to-equity ratio is 1.76 versus a D/E of 0.00 for RGS. CSV is therefore the more solvent of the two companies, and has lower financial risk.
CSV trades at a forward P/E of 13.45, a P/B of 2.13, and a P/S of 1.59, compared to a forward P/B of 0.94, and a P/S of 0.28 for RGS. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CSV is currently priced at a -27.06% to its one-year price target of $33.00. Comparatively, RGS is -15% relative to its price target of $12.00. This suggests that CSV 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 1.00 for CSV and 3.00 for RGS, which implies that analysts are more bullish on the outlook for RGS.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CSV has a beta of 0.89 and RGS’s beta is 1.48. CSV’s shares are therefore the less volatile of the two stocks.
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. CSV has a short ratio of 16.83 compared to a short interest of 12.22 for RGS. This implies that the market is currently less bearish on the outlook for RGS.
Carriage Services, Inc. (NYSE:CSV) beats Regis Corporation (NYSE:RGS) on a total of 7 of the 13 factors compared between the two stocks. CSV is growing fastly, is more profitable, generates a higher return on investment and has higher cash flow per share. CSV is more undervalued relative to its price target. Finally, NTRI has better sentiment signals based on short interest.