Earnings

Financially Devastating or Fantastic? – Sonos, Inc. (SONO), Hovnanian Enterprises, Inc. (HOV)

The shares of Sonos, Inc. have decreased by more than -39.33% this year alone. The shares recently went down by -2.11% or -$0.26 and now trades at $12.08. The shares of Hovnanian Enterprises, Inc. (NYSE:HOV), has slumped by -67.16% year to date as of 12/04/2018. The shares currently trade at $1.10 and have been able to report a change of -12.70% over the past one week.

The stock of Sonos, Inc. and Hovnanian Enterprises, Inc. were two of the most active stocks on Tuesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of SONO is -4.00% while that of HOV is -16.80%. These figures suggest that SONO ventures generate a higher ROI than that of HOV.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, SONO’s free cash flow per share is a positive 0.53, while that of HOV is negative -1.09.

Valuation



SONO currently trades at a forward P/E of 41.37, a P/B of 6.10, and a P/S of 1.04 while HOV trades at a forward P/E of 22.00, and a P/S of 0.08. This means that looking at the earnings, book values and sales basis, SONO is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of SONO is currently at a -43.81% to its one-year price target of 21.50. Looking at its rival pricing, HOV is at a -26.67% relative to its price target of 1.50.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), SONO is given a 2.50 while 3.00 placed for HOV. This means that analysts are more bullish on the outlook for HOV stocks.

Insider Activity and Investor Sentiment




Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for SONO is 5.17 while that of HOV is just 9.91. This means that analysts are more bullish on the forecast for SONO stock.

Conclusion

The stock of Hovnanian Enterprises, Inc. defeats that of Sonos, Inc. when the two are compared, with HOV taking 4 out of the total factors that were been considered. HOV happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, HOV is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for HOV is better on when it is viewed on short interest.

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