Hertz Global Holdings, Inc. (NYSE:HTZ) and Avis Budget Group, Inc. (NASDAQ:CAR) are the two most active stocks in the Rental & Leasing Services industry based on today’s 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.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Hertz Global Holdings, Inc. (HTZ) has an EBITDA margin of -22.19%, compared to an EBITDA margin of 4.37% for Avis Budget Group, Inc. (CAR). This suggests that CAR underlying business is more profitable. HTZ’s ROI is 0.50% while CAR has a ROI of 4.90%. The interpretation is that CAR’s business generates a higher return on investment than HTZ’s.
The value of a stock is simply the present value of its future free cash flows. HTZ’s free cash flow (“FCF”) per share for the trailing twelve months was -41.11. Comparatively, CAR’s free cash flow per share was -41.36. On a percent-of-sales basis, HTZ’s free cash flow was -39.1% while CAR converted -39.48% of its revenues into cash flow. This means that, for a given level of sales, HTZ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. HTZ’s debt-to-equity ratio is 22.23 versus a D/E of 100.91 for CAR. CAR is therefore the more solvent of the two companies, and has lower financial risk.
HTZ trades at a forward P/E of 109.15, a P/B of 2.68, and a P/S of 0.25, compared to a forward P/E of 11.91, a P/B of 21.98, and a P/S of 0.37 for CAR. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. HTZ is currently priced at a 40.68% to its one-year price target of $17.38. Comparatively, CAR is 3.64% relative to its price target of $37.33. This suggests that CAR 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 3.10 for HTZ and 2.30 for CAR, which implies that analysts are more bullish on the outlook for HTZ.
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. HTZ has a beta of 2.17 and CAR’s beta is 2.47. HTZ’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. HTZ has a short ratio of 2.73 compared to a short interest of 9.29 for CAR. This implies that the market is currently less bearish on the outlook for HTZ.
Hertz Global Holdings, Inc. (NYSE:HTZ) beats Avis Budget Group, Inc. (NASDAQ:CAR) on a total of 7 of the 12 factors compared between the two stocks. HTZ has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HTZ is the cheaper of the two stocks on book value and sales basis, Finally, HTZ has better sentiment signals based on short interest.