Alliant Energy Corporation (NASDAQ:LNT) shares are up more than 20.62% this year and recently decreased -0.64% or -$0.33 to settle at $50.96. CarGurus, Inc. (NASDAQ:CARG), on the other hand, is up 3.08% year to date as of 09/10/2019. It currently trades at $34.77 and has returned 9.27% during the past week.
Alliant Energy Corporation (NASDAQ:LNT) and CarGurus, Inc. (NASDAQ:CARG) are the two most active stocks in the Electric Utilities 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect LNT to grow earnings at a 5.05% annual rate over the next 5 years. Comparatively, CARG is expected to grow at a 47.00% annual rate. All else equal, CARG’s higher growth rate would imply a greater potential for capital appreciation.
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 EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 7.37% for CarGurus, Inc. (CARG). LNT’s ROI is 6.10% while CARG has a ROI of 32.40%. The interpretation is that CARG’s business generates a higher return on investment than LNT’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. LNT’s free cash flow (“FCF”) per share for the trailing twelve months was -1.21. Comparatively, CARG’s free cash flow per share was +0.11. On a percent-of-sales basis, LNT’s free cash flow was -8.13% while CARG converted 0% of its revenues into cash flow. This means that, for a given level of sales, CARG is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. LNT has a current ratio of 0.50 compared to 2.70 for CARG. This means that CARG can more easily cover its most immediate liabilities over the next twelve months. LNT’s debt-to-equity ratio is 1.39 versus a D/E of 0.00 for CARG. LNT is therefore the more solvent of the two companies, and has lower financial risk.Valuation
LNT trades at a forward P/E of 21.03, a P/B of 2.58, and a P/S of 3.40, compared to a forward P/E of 59.33, a P/B of 17.39, and a P/S of 7.35 for CARG. LNT is the cheaper 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
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. LNT is currently priced at a 0.79% to its one-year price target of 50.56. Comparatively, CARG is -26.92% relative to its price target of 47.58. This suggests that CARG 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. LNT has a short ratio of 7.86 compared to a short interest of 13.37 for CARG. This implies that the market is currently less bearish on the outlook for LNT.
CarGurus, Inc. (NASDAQ:CARG) beats Alliant Energy Corporation (NASDAQ:LNT) on a total of 9 of the 14 factors compared between the two stocks. CARG 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. In terms of valuation, LNT is the cheaper of the two stocks on an earnings, book value and sales basis, CARG is more undervalued relative to its price target.