Critical Comparison: ANGI Homeservices Inc. (ANGI) vs. Fortune Brands Home & Security, Inc. (FBHS)

ANGI Homeservices Inc. (NASDAQ:ANGI) shares are down more than -49.72% this year and recently decreased -1.34% or -$0.11 to settle at $8.08. Fortune Brands Home & Security, Inc. (NYSE:FBHS), on the other hand, is up 40.88% year to date as of 09/10/2019. It currently trades at $53.52 and has returned 9.18% during the past week.

ANGI Homeservices Inc. (NASDAQ:ANGI) and Fortune Brands Home & Security, Inc. (NYSE:FBHS) are the two most active stocks in the Internet Software & Services 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ANGI to grow earnings at a 52.29% annual rate over the next 5 years. Comparatively, FBHS is expected to grow at a 9.20% annual rate. All else equal, ANGI’s higher growth rate would imply a greater potential for capital appreciation.

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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 14.04% for Fortune Brands Home & Security, Inc. (FBHS). ANGI’s ROI is 5.40% while FBHS has a ROI of 10.10%. The interpretation is that FBHS’s business generates a higher return on investment than ANGI’s.

Cash Flow

Cash is king when it comes to investing. ANGI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, FBHS’s free cash flow per share was +1.01. On a percent-of-sales basis, ANGI’s free cash flow was 4.48% while FBHS converted 2.58% of its revenues into cash flow. This means that, for a given level of sales, ANGI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. ANGI has a current ratio of 2.20 compared to 1.10 for FBHS. This means that ANGI can more easily cover its most immediate liabilities over the next twelve months. ANGI’s debt-to-equity ratio is 0.19 versus a D/E of 1.03 for FBHS. FBHS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ANGI trades at a forward P/E of 67.33, a P/B of 3.06, and a P/S of 3.27, compared to a forward P/E of 13.43, a P/B of 3.20, and a P/S of 1.33 for FBHS. ANGI 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ANGI is currently priced at a -35.87% to its one-year price target of 12.60. Comparatively, FBHS is -3.74% relative to its price target of 55.60. This suggests that ANGI is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ANGI has a beta of 2.09 and FBHS’s beta is 1.51. FBHS’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. ANGI has a short ratio of 7.36 compared to a short interest of 2.68 for FBHS. This implies that the market is currently less bearish on the outlook for FBHS.

Summary

Fortune Brands Home & Security, Inc. (NYSE:FBHS) beats ANGI Homeservices Inc. (NASDAQ:ANGI) on a total of 7 of the 14 factors compared between the two stocks. FBHS is growing fastly, generates a higher return on investment and has higher cash flow per share. In terms of valuation, FBHS is the cheaper of the two stocks on an earnings and sales basis, Finally, FBHS has better sentiment signals based on short interest.