Mastercard Incorporated (NYSE:MA) shares are up more than 47.53% this year and recently increased 1.07% or $2.94 to settle at $278.32. Boingo Wireless, Inc. (NASDAQ:WIFI), on the other hand, is down -13.90% year to date as of 07/10/2019. It currently trades at $17.71 and has returned -3.22% during the past week.
Mastercard Incorporated (NYSE:MA) and Boingo Wireless, Inc. (NASDAQ:WIFI) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MA to grow earnings at a 18.44% annual rate over the next 5 years.
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 30.33% for Boingo Wireless, Inc. (WIFI). MA’s ROI is 50.00% while WIFI has a ROI of 0.70%. The interpretation is that MA’s business generates a higher return on investment than WIFI’s.Cash Flow
Cash is king when it comes to investing. MA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.90. Comparatively, WIFI’s free cash flow per share was -0.20. On a percent-of-sales basis, MA’s free cash flow was 6.15% while WIFI converted -0% of its revenues into cash flow. This means that, for a given level of sales, MA 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. MA has a current ratio of 1.40 compared to 0.90 for WIFI. This means that MA can more easily cover its most immediate liabilities over the next twelve months. MA’s debt-to-equity ratio is 1.22 versus a D/E of 1.81 for WIFI. WIFI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MA trades at a forward P/E of 30.89, a P/B of 55.22, and a P/S of 18.18, compared to a P/B of 8.35, and a P/S of 3.03 for WIFI. MA 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
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”. MA is currently priced at a -1.19% to its one-year price target of 281.67. Comparatively, WIFI is -42.98% relative to its price target of 31.06. This suggests that WIFI is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. MA has a beta of 1.07 and WIFI’s beta is 1.08. MA’s shares are therefore the less volatile of the two stocks.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. MA has a short ratio of 1.77 compared to a short interest of 11.73 for WIFI. This implies that the market is currently less bearish on the outlook for MA.
Mastercard Incorporated (NYSE:MA) beats Boingo Wireless, Inc. (NASDAQ:WIFI) on a total of 9 of the 14 factors compared between the two stocks. MA is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, MA has better sentiment signals based on short interest.