Avis Budget Group, Inc. (NASDAQ:CAR) shares are up more than 7.38% this year and recently decreased -3.01% or -$1.46 to settle at $47.12. Top Ships Inc. (NASDAQ:TOPS), on the other hand, is down -35.86% year to date as of 04/20/2018. It currently trades at $1.61 and has returned -8.01% during the past week.
Avis Budget Group, Inc. (NASDAQ:CAR) and Top Ships Inc. (NASDAQ:TOPS) are the two most active stocks in the Rental & Leasing Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
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 CAR to grow earnings at a 6.40% annual rate over the next 5 years.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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 2.8% for Top Ships Inc. (TOPS). CAR’s ROI is 4.90% while TOPS has a ROI of 0.80%. The interpretation is that CAR’s business generates a higher return on investment than TOPS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CAR’s free cash flow (“FCF”) per share for the trailing twelve months was -15.94. Comparatively, TOPS’s free cash flow per share was -684629.54. On a percent-of-sales basis, CAR’s free cash flow was -14.64% while TOPS converted -29517.66% of its revenues into cash flow. This means that, for a given level of sales, CAR 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. CAR has a current ratio of 1.30 compared to 1.10 for TOPS. This means that CAR can more easily cover its most immediate liabilities over the next twelve months. CAR’s debt-to-equity ratio is 22.37 versus a D/E of 0.98 for TOPS. CAR is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CAR trades at a forward P/E of 12.36, a P/B of 6.68, and a P/S of 0.44, compared to a P/B of 0.03, and a P/S of 0.65 for TOPS. CAR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. CAR is currently priced at a -4.4% to its one-year price target of 49.29. Comparatively, TOPS is -99.79% relative to its price target of 750.00. This suggests that TOPS is the better investment over the next year.
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. CAR has a beta of 2.19 and TOPS’s beta is 0.50. TOPS’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. CAR has a short ratio of 8.97 compared to a short interest of 0.70 for TOPS. This implies that the market is currently less bearish on the outlook for TOPS.Summary
Avis Budget Group, Inc. (NASDAQ:CAR) beats Top Ships Inc. (NASDAQ:TOPS) on a total of 8 of the 14 factors compared between the two stocks. CAR is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, CSTM has better sentiment signals based on short interest.