NVIDIA Corporation (NASDAQ:NVDA) shares are up more than 100.56% this year and recently increased 1.29% or $2.72 to settle at $214.08. CEVA, Inc. (NASDAQ:CEVA), on the other hand, is up 41.88% year to date as of 11/20/2017. It currently trades at $47.60 and has returned 2.70% during the past week.
NVIDIA Corporation (NASDAQ:NVDA) and CEVA, Inc. (NASDAQ:CEVA) are the two most active stocks in the Semiconductor – Specialized 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NVDA to grow earnings at a 15.45% annual rate over the next 5 years. Comparatively, CEVA is expected to grow at a 24.70% annual rate. All else equal, CEVA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 28.14% for CEVA, Inc. (CEVA). NVDA’s ROI is 19.80% while CEVA has a ROI of 5.20%. The interpretation is that NVDA’s business generates a higher return on investment than CEVA’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, NVDA’s free cash flow was 0% while CEVA converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, CEVA 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. NVDA has a current ratio of 7.80 compared to 8.40 for CEVA. This means that CEVA can more easily cover its most immediate liabilities over the next twelve months. NVDA’s debt-to-equity ratio is 0.35 versus a D/E of 0.00 for CEVA. NVDA is therefore the more solvent of the two companies, and has lower financial risk.
NVDA trades at a forward P/E of 45.56, a P/B of 21.39, and a P/S of 14.33, compared to a forward P/E of 33.52, a P/B of 4.37, and a P/S of 12.01 for CEVA. NVDA is the expensive of the two stocks on an earnings, book value and sales basis. 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”. NVDA is currently priced at a 3.76% to its one-year price target of 206.32. Comparatively, CEVA is -5.74% relative to its price target of 50.50. This suggests that CEVA 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 2.30 for NVDA and 1.90 for CEVA, which implies that analysts are more bullish on the outlook for NVDA.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. NVDA has a beta of 1.20 and CEVA’s beta is 0.77. CEVA’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. NVDA has a short ratio of 0.88 compared to a short interest of 3.89 for CEVA. This implies that the market is currently less bearish on the outlook for NVDA.
CEVA, Inc. (NASDAQ:CEVA) beats NVIDIA Corporation (NASDAQ:NVDA) on a total of 11 of the 14 factors compared between the two stocks. CEVA is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CEVA is the cheaper of the two stocks on an earnings, book value and sales basis, CEVA is more undervalued relative to its price target. Finally, VSLR has better sentiment signals based on short interest.