Sirius XM Holdings Inc. (NASDAQ:SIRI) shares are down more than -2.10% this year and recently decreased -0.18% or -$0.01 to settle at $5.59. ZTO Express (Cayman) Inc. (NYSE:ZTO), on the other hand, is up 21.91% year to date as of 06/24/2019. It currently trades at $19.04 and has returned 2.31% during the past week.
Sirius XM Holdings Inc. (NASDAQ:SIRI) and ZTO Express (Cayman) Inc. (NYSE:ZTO) are the two most active stocks based on recent trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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. Analysts expect SIRI to grow earnings at a 5.09% annual rate over the next 5 years. Comparatively, ZTO is expected to grow at a 2.97% annual rate. All else equal, SIRI’s higher growth rate would imply a greater potential for capital appreciation.
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 EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Sirius XM Holdings Inc. (SIRI) has an EBITDA margin of 21.77%. This suggests that SIRI underlying business is more profitable SIRI’s ROI is 29.20% while ZTO has a ROI of 9.90%. The interpretation is that SIRI’s business generates a higher return on investment than ZTO’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SIRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, ZTO’s free cash flow per share was -. On a percent-of-sales basis, SIRI’s free cash flow was 4% while ZTO converted 0% of its revenues into cash flow. This means that, for a given level of sales, SIRI is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. SIRI has a current ratio of 0.30 compared to 3.60 for ZTO. This means that ZTO can more easily cover its most immediate liabilities over the next twelve months. SIRI’s debt-to-equity ratio is 46.66 versus a D/E of 0.02 for ZTO. SIRI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SIRI trades at a forward P/E of 21.67, a P/B of 186.33, and a P/S of 4.30, compared to a forward P/E of 17.00, a P/B of 3.06, and a P/S of 5.56 for ZTO. SIRI 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SIRI is currently priced at a -17.43% to its one-year price target of 6.77. Comparatively, ZTO is -16.75% relative to its price target of 22.87. This suggests that SIRI is the better investment over the next year.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. SIRI has a short ratio of 6.16 compared to a short interest of 7.13 for ZTO. This implies that the market is currently less bearish on the outlook for SIRI.
Sirius XM Holdings Inc. (NASDAQ:SIRI) beats ZTO Express (Cayman) Inc. (NYSE:ZTO) on a total of 8 of the 14 factors compared between the two stocks. SIRI is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. SIRI is more undervalued relative to its price target. Finally, SIRI has better sentiment signals based on short interest.