Comparing The Kroger Co. (KR) and The Meet Group, Inc. (MEET)

The Kroger Co. (NYSE:KR) shares are down more than -16.18% this year and recently decreased -0.09% or -$0.02 to settle at $23.05. The Meet Group, Inc. (NASDAQ:MEET), on the other hand, is down -25.49% year to date as of 08/13/2019. It currently trades at $3.45 and has returned -0.58% during the past week.

The Kroger Co. (NYSE:KR) and The Meet Group, Inc. (NASDAQ:MEET) are the two most active stocks in the Grocery Stores industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect KR to grow earnings at a 5.82% annual rate over the next 5 years. Comparatively, MEET is expected to grow at a 20.00% annual rate. All else equal, MEET’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 12.88% for The Meet Group, Inc. (MEET). KR’s ROI is 15.10% while MEET has a ROI of 1.50%. The interpretation is that KR’s business generates a higher return on investment than MEET’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. KR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.60. Comparatively, MEET’s free cash flow per share was +0.13. On a percent-of-sales basis, KR’s free cash flow was 1.05% while MEET converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, KR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. KR has a current ratio of 0.70 compared to 1.20 for MEET. This means that MEET can more easily cover its most immediate liabilities over the next twelve months. KR’s debt-to-equity ratio is 1.57 versus a D/E of 0.16 for MEET. KR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

KR trades at a forward P/E of 9.96, a P/B of 2.14, and a P/S of 0.15, compared to a forward P/E of 6.32, a P/B of 1.26, and a P/S of 1.34 for MEET. KR 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

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. KR is currently priced at a -12.12% to its one-year price target of 26.23. Comparatively, MEET is -47.33% relative to its price target of 6.55. This suggests that MEET 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. KR has a beta of 0.58 and MEET’s beta is 1.52. KR’s shares are therefore the less volatile of the two stocks.

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. KR has a short ratio of 4.52 compared to a short interest of 9.27 for MEET. This implies that the market is currently less bearish on the outlook for KR.

Summary

The Meet Group, Inc. (NASDAQ:MEET) beats The Kroger Co. (NYSE:KR) on a total of 8 of the 14 factors compared between the two stocks. MEET generates a higher return on investment, is more profitable, higher liquidity and has lower financial risk. In terms of valuation, MEET is the cheaper of the two stocks on an earnings and book value, MEET is more undervalued relative to its price target.