Senseonics Holdings, Inc. (NYSE:SENS) shares are down more than -59.85% this year and recently decreased -3.70% or -$0.04 to settle at $1.04. Zumiez Inc. (NASDAQ:ZUMZ), on the other hand, is up 54.09% year to date as of 11/29/2019. It currently trades at $29.54 and has returned 2.21% during the past week.
Senseonics Holdings, Inc. (NYSE:SENS) and Zumiez Inc. (NASDAQ:ZUMZ) are the two most active stocks in the Medical Appliances & Equipment industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 SENS to grow earnings at a 8.40% annual rate over the next 5 years. Comparatively, ZUMZ is expected to grow at a 15.00% annual rate. All else equal, ZUMZ’s higher growth rate would imply a greater potential for capital appreciation.
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. EBITDA margin of 10.13% for Zumiez Inc. (ZUMZ). SENS’s ROI is -71.70% while ZUMZ has a ROI of 8.80%. The interpretation is that ZUMZ’s business generates a higher return on investment than SENS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SENS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.18. Comparatively, ZUMZ’s free cash flow per share was +1.43. On a percent-of-sales basis, SENS’s free cash flow was -0.19% while ZUMZ converted 0% of its revenues into cash flow. This means that, for a given level of sales, ZUMZ is able to generate more free cash flow for investors.
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. SENS has a current ratio of 7.40 compared to 2.10 for ZUMZ. This means that SENS can more easily cover its most immediate liabilities over the next twelve months. SENS’s debt-to-equity ratio is 3.57 versus a D/E of 0.00 for ZUMZ. SENS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SENS trades at a P/B of 8.00, and a P/S of 11.27, compared to a forward P/E of 13.09, a P/B of 1.84, and a P/S of 0.80 for ZUMZ. SENS is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. SENS is currently priced at a -46.67% to its one-year price target of 1.95. Comparatively, ZUMZ is -0.44% relative to its price target of 29.67. This suggests that SENS 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. SENS has a beta of 0.87 and ZUMZ’s beta is 1.46. SENS’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. SENS has a short ratio of 24.41 compared to a short interest of 5.41 for ZUMZ. This implies that the market is currently less bearish on the outlook for ZUMZ.
Zumiez Inc. (NASDAQ:ZUMZ) beats Senseonics Holdings, Inc. (NYSE:SENS) on a total of 9 of the 14 factors compared between the two stocks. ZUMZ higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, ZUMZ is the cheaper of the two stocks on book value and sales basis, Finally, ZUMZ has better sentiment signals based on short interest.