VeriSign, Inc. (NASDAQ:VRSN) shares are up more than 28.63% this year and recently decreased -0.57% or -$1.1 to settle at $190.74. CoreCivic, Inc. (NYSE:CXW), on the other hand, is down -15.03% year to date as of 11/29/2019. It currently trades at $15.15 and has returned 0.40% during the past week.
VeriSign, Inc. (NASDAQ:VRSN) and CoreCivic, Inc. (NYSE:CXW) are the two most active stocks in the Internet Information Providers 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect VRSN to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, CXW is expected to grow at a 6.00% annual rate. All else equal, VRSN’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 22.29% for CoreCivic, Inc. (CXW). VRSN’s ROI is 165.80% while CXW has a ROI of 7.40%. The interpretation is that VRSN’s business generates a higher return on investment than CXW’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. VRSN’s free cash flow (“FCF”) per share for the trailing twelve months was +1.66. Comparatively, CXW’s free cash flow per share was +0.30. On a percent-of-sales basis, VRSN’s free cash flow was 16.04% while CXW converted 1.95% of its revenues into cash flow. This means that, for a given level of sales, VRSN is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. VRSN has a current ratio of 1.40 compared to 0.50 for CXW. This means that VRSN can more easily cover its most immediate liabilities over the next twelve months.Valuation
VRSN trades at a forward P/E of 33.42, and a P/S of 18.33, compared to a P/B of 1.30, and a P/S of 0.93 for CXW. VRSN 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. VRSN is currently priced at a -18.95% to its one-year price target of 235.33. Comparatively, CXW is -36.88% relative to its price target of 24.00. This suggests that CXW 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. VRSN has a beta of 1.03 and CXW’s beta is 1.01. CXW’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. VRSN has a short ratio of 2.01 compared to a short interest of 3.73 for CXW. This implies that the market is currently less bearish on the outlook for VRSN.
VeriSign, Inc. (NASDAQ:VRSN) beats CoreCivic, Inc. (NYSE:CXW) on a total of 10 of the 14 factors compared between the two stocks. VRSN is growing fastly, 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. Finally, VRSN has better sentiment signals based on short interest.