Sprint Corporation (NYSE:S) shares are down more than -15.20% this year and recently decreased -0.70% or -$0.05 to settle at $7.14. Globalstar, Inc. (NYSE:GSAT), on the other hand, is down -0.63% year to date as of 10/12/2017. It currently trades at $1.57 and has returned -5.42% during the past week.
Sprint Corporation (NYSE:S) and Globalstar, Inc. (NYSE:GSAT) are the two most active stocks in the Wireless Communications 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect S to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, GSAT is expected to grow at a 15.00% annual rate. All else equal, GSAT’s higher growth rate would imply a greater potential for capital appreciation.
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. Sprint Corporation (S) has an EBITDA margin of 31.8%. This suggests that S underlying business is more profitable S’s ROI is 2.20% while GSAT has a ROI of -7.70%. The interpretation is that S’s business generates a higher return on investment than GSAT’s.
The value of a stock is simply the present value of its future free cash flows. S’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, GSAT’s free cash flow per share was +0.00. On a percent-of-sales basis, S’s free cash flow was -0.96% while GSAT converted 0% of its revenues into cash flow. This means that, for a given level of sales, GSAT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. S has a current ratio of 1.10 compared to 0.20 for GSAT. This means that S can more easily cover its most immediate liabilities over the next twelve months. S’s debt-to-equity ratio is 2.08 versus a D/E of 6.22 for GSAT. GSAT is therefore the more solvent of the two companies, and has lower financial risk.
S trades at a forward P/E of 151.91, a P/B of 1.50, and a P/S of 0.86, compared to a P/B of 19.63, and a P/S of 18.11 for GSAT. 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. S is currently priced at a -1.92% to its one-year price target of 7.28. Comparatively, GSAT is -37.2% relative to its price target of 2.50. This suggests that GSAT 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 2.70 for S and 2.00 for GSAT, which implies that analysts are more bullish on the outlook for S.
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. S has a beta of 0.89 and GSAT’s beta is 2.57. S’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. S has a short ratio of 7.33 compared to a short interest of 28.37 for GSAT. This implies that the market is currently less bearish on the outlook for S.
Sprint Corporation (NYSE:S) beats Globalstar, Inc. (NYSE:GSAT) on a total of 8 of the 14 factors compared between the two stocks. S is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, S is the cheaper of the two stocks on book value and sales basis, Finally, S has better sentiment signals based on short interest.