Synchrony Financial (NYSE:SYF) shares are up more than 44.29% this year and recently decreased -0.24% or -$0.08 to settle at $33.85. Stitch Fix, Inc. (NASDAQ:SFIX), on the other hand, is up 22.94% year to date as of 09/12/2019. It currently trades at $21.01 and has returned 10.58% during the past week.
Synchrony Financial (NYSE:SYF) and Stitch Fix, Inc. (NASDAQ:SFIX) are the two most active stocks in the Credit 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 SYF to grow earnings at a 11.00% annual rate over the next 5 years. Comparatively, SFIX is expected to grow at a 46.70% annual rate. All else equal, SFIX’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 3.06% for Stitch Fix, Inc. (SFIX). SYF’s ROI is 25.10% while SFIX has a ROI of 11.90%. The interpretation is that SYF’s business generates a higher return on investment than SFIX’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. SYF’s free cash flow (“FCF”) per share for the trailing twelve months was +2.65. Comparatively, SFIX’s free cash flow per share was +0.05. On a percent-of-sales basis, SYF’s free cash flow was 9.63% while SFIX converted 0.41% of its revenues into cash flow. This means that, for a given level of sales, SYF is able to generate more free cash flow for investors.
SYF’s debt-to-equity ratio is 1.44 versus a D/E of 0.00 for SFIX. SYF is therefore the more solvent of the two companies, and has lower financial risk.
SYF trades at a forward P/E of 7.27, a P/B of 1.57, and a P/S of 1.19, compared to a forward P/E of 70.03, a P/B of 5.62, and a P/S of 1.52 for SFIX. SYF is the cheaper 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
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”. SYF is currently priced at a -16.73% to its one-year price target of 40.65. Comparatively, SFIX is -42.04% relative to its price target of 36.25. This suggests that SFIX is the better investment over the next year.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. SYF has a short ratio of 2.24 compared to a short interest of 4.97 for SFIX. This implies that the market is currently less bearish on the outlook for SYF.
Synchrony Financial (NYSE:SYF) beats Stitch Fix, Inc. (NASDAQ:SFIX) on a total of 9 of the 14 factors compared between the two stocks. SYF is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, SYF is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, SYF has better sentiment signals based on short interest.