JD.com, Inc. (NASDAQ:JD) shares are down more than -13.18% this year and recently decreased -1.29% or -$0.47 to settle at $35.96. FirstEnergy Corp. (NYSE:FE), on the other hand, is up 8.59% year to date as of 05/17/2018. It currently trades at $33.25 and has returned -1.95% during the past week.
JD.com, Inc. (NASDAQ:JD) and FirstEnergy Corp. (NYSE:FE) are the two most active stocks in the Internet Information Providers 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect JD to grow earnings at a 10.59% annual rate over the next 5 years. Comparatively, FE is expected to grow at a -6.92% annual rate. All else equal, JD’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 14.68% for FirstEnergy Corp. (FE). JD’s ROI is -1.30% while FE has a ROI of -3.00%. The interpretation is that JD’s business generates a higher return on investment than FE’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. JD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.89. Comparatively, FE’s free cash flow per share was -3.43. On a percent-of-sales basis, JD’s free cash flow was 1.92% while FE converted -11.67% of its revenues into cash flow. This means that, for a given level of sales, JD 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. JD has a current ratio of 1.10 compared to 0.50 for FE. This means that JD can more easily cover its most immediate liabilities over the next twelve months. JD’s debt-to-equity ratio is 0.38 versus a D/E of 2.65 for FE. FE is therefore the more solvent of the two companies, and has lower financial risk.Valuation
JD trades at a forward P/E of 28.05, a P/B of 6.00, and a P/S of 0.85, compared to a forward P/E of 13.41, a P/B of 2.19, and a P/S of 1.16 for FE. JD 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
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. JD is currently priced at a -26.94% to its one-year price target of 49.22. Comparatively, FE is -8.8% relative to its price target of 36.46. This suggests that JD 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. JD has a beta of 1.60 and FE’s beta is 0.27. FE’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. JD has a short ratio of 3.19 compared to a short interest of 0.00 for FE. This implies that the market is currently less bearish on the outlook for FE.Summary
JD.com, Inc. (NASDAQ:JD) beats FirstEnergy Corp. (NYSE:FE) on a total of 9 of the 14 factors compared between the two stocks. JD is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. JD is more undervalued relative to its price target.