Farfetch Limited (FTCH) vs. Bilibili Inc. (BILI): Which is the Better Investment?

Farfetch Limited (NYSE:FTCH) shares are down more than -32.24% this year and recently increased 5.26% or $0.6 to settle at $12.00. Bilibili Inc. (NASDAQ:BILI), on the other hand, is down -3.98% year to date as of 08/13/2019. It currently trades at $14.01 and has returned 0.43% during the past week.

Farfetch Limited (NYSE:FTCH) and Bilibili Inc. (NASDAQ:BILI) are the two most active stocks in the Specialty Retail, Other industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Profitability and Returns

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 Return on Investment (ROI) as measures of profitability and return. FTCH’s ROI is -15.50% while BILI has a ROI of -10.90%. The interpretation is that BILI’s business generates a higher return on investment than FTCH’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. FTCH’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, BILI’s free cash flow per share was -. On a percent-of-sales basis, FTCH’s free cash flow was -0.01% while BILI converted 0% of its revenues into cash flow. This means that, for a given level of sales, BILI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. FTCH has a current ratio of 4.60 compared to 1.70 for BILI. This means that FTCH can more easily cover its most immediate liabilities over the next twelve months. FTCH’s debt-to-equity ratio is 0.00 versus a D/E of 0.01 for BILI. BILI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FTCH trades at a P/B of 3.36, and a P/S of 9.69, compared to a P/B of 4.59, and a P/S of 7.03 for BILI. FTCH 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

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”. FTCH is currently priced at a -60.66% to its one-year price target of 30.50. Comparatively, BILI is -32.84% relative to its price target of 20.86. This suggests that FTCH is the better investment over the next year.

Summary

Bilibili Inc. (NASDAQ:BILI) beats Farfetch Limited (NYSE:FTCH) on a total of 5 of the 14 factors compared between the two stocks. BILI higher liquidity, has higher cash flow per share and has a higher cash conversion rate.