Big Lots, Inc. (NYSE:BIG) shares are up more than 17.13% this year and recently decreased -1.24% or -$0.73 to settle at $58.08. Tuesday Morning Corporation (NASDAQ:TUES), on the other hand, is down -51.85% year to date as of 12/05/2017. It currently trades at $2.70 and has returned 4.00% during the past week.
Big Lots, Inc. (NYSE:BIG) and Tuesday Morning Corporation (NASDAQ:TUES) are the two most active stocks in the Discount, Variety Stores 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.
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 BIG to grow earnings at a 13.95% annual rate over the next 5 years.
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. Big Lots, Inc. (BIG) has an EBITDA margin of 7.87%. This suggests that BIG underlying business is more profitable BIG’s ROI is 20.70% while TUES has a ROI of -14.20%. The interpretation is that BIG’s business generates a higher return on investment than TUES’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, BIG’s free cash flow was 0% while TUES converted -0% of its revenues into cash flow. This means that, for a given level of sales, BIG 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. BIG has a current ratio of 1.60 compared to 1.70 for TUES. This means that TUES can more easily cover its most immediate liabilities over the next twelve months. BIG’s debt-to-equity ratio is 0.39 versus a D/E of 0.23 for TUES. BIG is therefore the more solvent of the two companies, and has lower financial risk.
BIG trades at a forward P/E of 13.00, a P/B of 4.34, and a P/S of 0.48, compared to a P/B of 0.61, and a P/S of 0.12 for TUES. BIG 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
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. BIG is currently priced at a 2.02% to its one-year price target of 56.93. Comparatively, TUES is -22.86% relative to its price target of 3.50. This suggests that TUES 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 2.10 for BIG and 3.00 for TUES, which implies that analysts are more bullish on the outlook for TUES.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. BIG has a beta of 0.97 and TUES’s beta is 2.01. BIG’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. BIG has a short ratio of 14.00 compared to a short interest of 33.90 for TUES. This implies that the market is currently less bearish on the outlook for BIG.
Big Lots, Inc. (NYSE:BIG) beats Tuesday Morning Corporation (NASDAQ:TUES) on a total of 7 of the 14 factors compared between the two stocks. BIG is growing fastly, is more profitable, generates a higher return on investment and has higher cash flow per share. Finally, BIG has better sentiment signals based on short interest.