A Side-by-side Analysis of MGM Resorts International (MGM) and Viveve Medical, Inc. (VIVE)

MGM Resorts International (NYSE:MGM) shares are up more than 31.74% this year and recently increased 0.03% or $0.01 to settle at $31.96. Viveve Medical, Inc. (NASDAQ:VIVE), on the other hand, is down -99.18% year to date as of 12/02/2019. It currently trades at $0.86 and has returned -6.53% during the past week.

MGM Resorts International (NYSE:MGM) and Viveve Medical, Inc. (NASDAQ:VIVE) are the two most active stocks in the Resorts & Casinos 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.

Growth

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 MGM to grow earnings at a 31.51% annual rate over the next 5 years. Comparatively, VIVE is expected to grow at a 20.00% annual rate. All else equal, MGM’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. MGM Resorts International (MGM) has an EBITDA margin of 21.4%. This suggests that MGM underlying business is more profitable MGM’s ROI is 6.60% while VIVE has a ROI of -127.00%. The interpretation is that MGM’s business generates a higher return on investment than VIVE’s.

Cash Flow

Cash is king when it comes to investing. MGM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, VIVE’s free cash flow per share was -11.44. On a percent-of-sales basis, MGM’s free cash flow was 1.46% while VIVE converted -0.09% of its revenues into cash flow. This means that, for a given level of sales, MGM is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MGM has a current ratio of 0.90 compared to 3.10 for VIVE. This means that VIVE can more easily cover its most immediate liabilities over the next twelve months.

Valuation

MGM trades at a forward P/E of 20.13, a P/B of 2.74, and a P/S of 1.30, compared to a P/S of 0.14 for VIVE. MGM is the expensive 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

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. MGM is currently priced at a -7.66% to its one-year price target of 34.61. Comparatively, VIVE is -99.79% relative to its price target of 400.00. This suggests that VIVE 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. MGM has a beta of 1.53 and VIVE’s beta is -0.12. VIVE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MGM has a short ratio of 1.99 compared to a short interest of 0.12 for VIVE. This implies that the market is currently less bearish on the outlook for VIVE.

Summary

Viveve Medical, Inc. (NASDAQ:VIVE) beats MGM Resorts International (NYSE:MGM) on a total of 8 of the 14 factors compared between the two stocks. VIVE is growing fastly and has lower financial risk. In terms of valuation, VIVE is the cheaper of the two stocks on an earnings, book value and sales basis, VIVE is more undervalued relative to its price target. Finally, VIVE has better sentiment signals based on short interest.