Vodafone Group Plc (NASDAQ:VOD) shares are down more than -6.02% this year and recently increased 1.51% or $0.27 to settle at $18.12. Perion Network Ltd. (NASDAQ:PERI), on the other hand, is up 115.77% year to date as of 08/13/2019. It currently trades at $5.61 and has returned 32.00% during the past week.
Vodafone Group Plc (NASDAQ:VOD) and Perion Network Ltd. (NASDAQ:PERI) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VOD to grow earnings at a 13.50% annual rate over the next 5 years.
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 Return on Investment (ROI) to measure this. VOD’s ROI is -2.10% while PERI has a ROI of 6.30%. The interpretation is that PERI’s business generates a higher return on investment than VOD’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, VOD’s free cash flow was 0% while PERI converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, PERI is able to generate more free cash flow for investors.
VOD trades at a forward P/E of 156.21, a P/B of 0.71, and a P/S of 1.01, compared to a forward P/E of 10.69, a P/B of 0.96, and a P/S of 0.59 for PERI. VOD is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. VOD is currently priced at a -30.97% to its one-year price target of 26.25. Comparatively, PERI is -10.24% relative to its price target of 6.25. This suggests that VOD is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. VOD has a beta of 0.79 and PERI’s beta is 1.08. VOD’s shares are therefore the less volatile of the two stocks.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. VOD has a short ratio of 0.66 compared to a short interest of 0.63 for PERI. This implies that the market is currently less bearish on the outlook for PERI.
Perion Network Ltd. (NASDAQ:PERI) beats Vodafone Group Plc (NASDAQ:VOD) on a total of 7 of the 14 factors compared between the two stocks. PERI is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, PERI is the cheaper of the two stocks on an earnings and sales basis, Finally, PERI has better sentiment signals based on short interest.