Cincinnati Bell Inc. (NYSE:CBB) shares are down more than -38.95% this year and recently decreased -2.06% or -$0.1 to settle at $4.75. Arlo Technologies, Inc. (NYSE:ARLO), on the other hand, is down -69.24% year to date as of 08/13/2019. It currently trades at $3.07 and has returned -17.69% during the past week.
Cincinnati Bell Inc. (NYSE:CBB) and Arlo Technologies, Inc. (NYSE:ARLO) are the two most active stocks in the Telecom Services – Domestic 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CBB to grow earnings at a 34.90% annual rate over the next 5 years. Comparatively, ARLO is expected to grow at a 0.97% annual rate. All else equal, CBB’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. Cincinnati Bell Inc. (CBB) has an EBITDA margin of 19.32%. This suggests that CBB underlying business is more profitable CBB’s ROI is 4.20% while ARLO has a ROI of -26.10%. The interpretation is that CBB’s business generates a higher return on investment than ARLO’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. CBB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, ARLO’s free cash flow per share was -0.56. On a percent-of-sales basis, CBB’s free cash flow was 0.33% while ARLO converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, CBB is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. CBB has a current ratio of 0.70 compared to 2.00 for ARLO. This means that ARLO can more easily cover its most immediate liabilities over the next twelve months.Valuation
CBB trades at a P/S of 0.16, compared to a P/B of 1.13, and a P/S of 0.61 for ARLO. 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”. CBB is currently priced at a -38.71% to its one-year price target of 7.75. Comparatively, ARLO is -52.77% relative to its price target of 6.50. This suggests that ARLO is the better investment over the next year.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CBB has a short ratio of 13.94 compared to a short interest of 5.29 for ARLO. This implies that the market is currently less bearish on the outlook for ARLO.
Cincinnati Bell Inc. (NYSE:CBB) beats Arlo Technologies, Inc. (NYSE:ARLO) on a total of 8 of the 14 factors compared between the two stocks. CBB 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. In terms of valuation, CBB is the cheaper of the two stocks on book value and sales basis,