Fidelity National Information Services, Inc. (NYSE:FIS) shares are up more than 30.12% this year and recently increased 1.64% or $2.15 to settle at $133.44. United Airlines Holdings, Inc. (NASDAQ:UAL), on the other hand, is up 6.75% year to date as of 09/12/2019. It currently trades at $89.38 and has returned 4.12% during the past week.
Fidelity National Information Services, Inc. (NYSE:FIS) and United Airlines Holdings, Inc. (NASDAQ:UAL) are the two most active stocks in the Information Technology Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FIS to grow earnings at a 2.33% annual rate over the next 5 years. Comparatively, UAL is expected to grow at a 16.18% annual rate. All else equal, UAL’s higher growth rate would imply a greater potential for capital appreciation.
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 13.32% for United Airlines Holdings, Inc. (UAL). FIS’s ROI is 6.50% while UAL has a ROI of 11.60%. The interpretation is that UAL’s business generates a higher return on investment than FIS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FIS’s free cash flow (“FCF”) per share for the trailing twelve months was +1.20. Comparatively, UAL’s free cash flow per share was +7.08. On a percent-of-sales basis, FIS’s free cash flow was 8.74% while UAL converted 4.4% of its revenues into cash flow. This means that, for a given level of sales, FIS is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. FIS has a current ratio of 3.00 compared to 0.60 for UAL. This means that FIS can more easily cover its most immediate liabilities over the next twelve months. FIS’s debt-to-equity ratio is 1.83 versus a D/E of 1.41 for UAL. FIS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
FIS trades at a forward P/E of 20.99, a P/B of 4.33, and a P/S of 9.82, compared to a forward P/E of 7.12, a P/B of 2.26, and a P/S of 0.55 for UAL. FIS is the expensive of the two stocks on an earnings, book value and sales basis. 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. FIS is currently priced at a -12.23% to its one-year price target of 152.04. Comparatively, UAL is -18.6% relative to its price target of 109.80. This suggests that UAL is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. FIS has a beta of 0.65 and UAL’s beta is 1.19. FIS’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. FIS has a short ratio of 2.21 compared to a short interest of 5.27 for UAL. This implies that the market is currently less bearish on the outlook for FIS.
United Airlines Holdings, Inc. (NASDAQ:UAL) beats Fidelity National Information Services, Inc. (NYSE:FIS) on a total of 8 of the 14 factors compared between the two stocks. UAL is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, UAL is the cheaper of the two stocks on an earnings, book value and sales basis, UAL is more undervalued relative to its price target.