Fitbit, Inc. (NYSE:FIT) and Symantec Corporation (NASDAQ:SYMC) are the two most active stocks in the Scientific & Technical Instruments industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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 FIT to grow earnings at a 3.89% annual rate over the next 5 years. Comparatively, SYMC is expected to grow at a 1.90% annual rate. All else equal, FIT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. FIT’s ROI is -10.60% while SYMC has a ROI of -0.60%. The interpretation is that SYMC’s business generates a higher return on investment than FIT’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FIT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, SYMC’s free cash flow per share was +0.16. On a percent-of-sales basis, FIT’s free cash flow was -2.26% while SYMC converted 2.45% of its revenues into cash flow. This means that, for a given level of sales, SYMC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FIT has a current ratio of 2.40 compared to 1.00 for SYMC. This means that FIT can more easily cover its most immediate liabilities over the next twelve months. FIT’s debt-to-equity ratio is 0.00 versus a D/E of 1.83 for SYMC. SYMC is therefore the more solvent of the two companies, and has lower financial risk.
FIT trades at a forward P/B of 1.61, and a P/S of 0.86, compared to a forward P/E of 16.55, a P/B of 6.06, and a P/S of 4.84 for SYMC. 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”. FIT is currently priced at a -3.73% to its one-year price target of $6.71. Comparatively, SYMC is 1.26% relative to its price target of $33.28. This suggests that FIT 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 2.90 for FIT and 2.50 for SYMC, which implies that analysts are more bullish on the outlook for FIT.
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. SYMC’s beta is 1.15.
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. FIT has a short ratio of 6.62 compared to a short interest of 3.23 for SYMC. This implies that the market is currently less bearish on the outlook for SYMC.
Symantec Corporation (NASDAQ:SYMC) beats Fitbit, Inc. (NYSE:FIT) on a total of 6 of the 12 factors compared between the two stocks. SYMC is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, SYMC has better sentiment signals based on short interest.