Marathon Patent Group, Inc. (NASDAQ:MARA) shares are down more than -28.78% this year and recently decreased -14.04% or -$0.8 to settle at $4.90. R.R. Donnelley & Sons Company (NYSE:RRD), on the other hand, is down -41.12% year to date as of 12/21/2017. It currently trades at $9.61 and has returned 8.83% during the past week.
Marathon Patent Group, Inc. (NASDAQ:MARA) and R.R. Donnelley & Sons Company (NYSE:RRD) are the two most active stocks in the Business Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect MARA to grow earnings at a 50.00% annual rate over the next 5 years. Comparatively, RRD is expected to grow at a -5.00% annual rate. All else equal, MARA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. MARA’s ROI is -265.70% while RRD has a ROI of -12.60%. The interpretation is that RRD’s business generates a higher return on investment than MARA’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MARA’s free cash flow (“FCF”) per share for the trailing twelve months was -1.29. Comparatively, RRD’s free cash flow per share was +0.09. On a percent-of-sales basis, MARA’s free cash flow was -0.04% while RRD converted 0.09% of its revenues into cash flow. This means that, for a given level of sales, RRD 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. MARA has a current ratio of 0.20 compared to 1.50 for RRD. This means that RRD can more easily cover its most immediate liabilities over the next twelve months.
MARA trades at a forward P/E of 24.50, and a P/S of 58.56, compared to a forward P/E of 8.21, and a P/S of 0.10 for RRD. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. MARA is currently priced at a 22.5% to its one-year price target of 4.00. Comparatively, RRD is -49.42% relative to its price target of 19.00. This suggests that RRD 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 2.00 for MARA and 2.00 for RRD, which implies that analysts are equally bullish on their outlook for the two stocks.
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. MARA has a beta of 1.52 and RRD’s beta is 1.50. RRD’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MARA has a short ratio of 0.40 compared to a short interest of 5.91 for RRD. This implies that the market is currently less bearish on the outlook for MARA.
R.R. Donnelley & Sons Company (NYSE:RRD) beats Marathon Patent Group, Inc. (NASDAQ:MARA) on a total of 9 of the 13 factors compared between the two stocks. RRD is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, RRD is the cheaper of the two stocks on an earnings and sales basis, RRD is more undervalued relative to its price target. Finally, FDC has better sentiment signals based on short interest.