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Critical Comparison: Yext, Inc. (YEXT) vs. Hortonworks, Inc. (HDP)

Yext, Inc. (NYSE:YEXT) shares are up more than 52.70% this year and recently decreased -1.24% or -$0.23 to settle at $18.37. Hortonworks, Inc. (NASDAQ:HDP), on the other hand, is down -7.81% year to date as of 10/22/2018. It currently trades at $18.54 and has returned -6.13% during the past week.

Yext, Inc. (NYSE:YEXT) and Hortonworks, Inc. (NASDAQ:HDP) are the two most active stocks in the Internet Software & 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. Comparatively, HDP is expected to grow at a 20.00% annual rate. All else equal, HDP’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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. YEXT’s ROI is -55.50% while HDP has a ROI of 311.70%. The interpretation is that HDP’s business generates a higher return on investment than YEXT’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. YEXT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, HDP’s free cash flow per share was -0.03. On a percent-of-sales basis, YEXT’s free cash flow was -0% while HDP converted -0% of its revenues into cash flow. This means that, for a given level of sales, YEXT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. YEXT has a current ratio of 1.50 compared to 1.00 for HDP. This means that YEXT can more easily cover its most immediate liabilities over the next twelve months.

Valuation

YEXT trades at a P/B of 23.55, and a P/S of 9.39, compared to a P/S of 5.19 for HDP. 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”. YEXT is currently priced at a -32.46% to its one-year price target of 27.20. Comparatively, HDP is -33.57% relative to its price target of 27.91. This suggests that HDP is the better investment over the next year.

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. YEXT has a short ratio of 3.12 compared to a short interest of 3.43 for HDP. This implies that the market is currently less bearish on the outlook for YEXT.

Summary




Hortonworks, Inc. (NASDAQ:HDP) beats Yext, Inc. (NYSE:YEXT) on a total of 8 of the 14 factors compared between the two stocks. HDP higher liquidity, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, HDP is the cheaper of the two stocks on book value and sales basis, HDP is more undervalued relative to its price target. Finally, AKTS has better sentiment signals based on short interest.

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