Both Community Health Systems, Inc. (NYSE:$CYH) and HCA Healthcare, Inc. (NYSE:$HCA) are active small-cap companies operating in the hospital industry. So which one is the better investment? Let’s take a look a the numbers.
Growth
Over the next 5 years, analysts expect CYH to grow its earnings at a rate of 9.87%. However, this is below 5-year estimates for HCA, which analysts pin at 10.44%, implying a greater potential for capital appreciation.
Profitability
The EBITDA margin and the Return on Investment are useful tools for evaluating a company’s profitability independent of growth, which may be inflated by overinvestment. CYH currently has an ROI of -4.70% compared to HCA’s ROI of 21.00%. This indicates that HCA generates higher returns on investments.
On the other hand, CYH currently has an EBITDA margin of 9.23%, whereas HCA has an EBITDA of 18.72%. This suggests that HCA is also more profitable.
Cash Flow
A stock’s value can be easily measured by the current value of its future free cash flows. CYH has a Free Cash Flow of +1.17 per share. HCA has an FCF of +1.79 per share. When put into a percent-of-sales basis, CYH’s FCF was 0.73% compared to HCA’s 1.56%. Based on this, it’s apparent that HCA is more effective at generating more free cash flow for investors.
Valuation
We can also take a look at the P/E, P/B, and P/S ratios of both companies. CYH currently has a P/E of 38.31, a P/B of 0.55, and a P/S of 0.04. HCA has a P/E of 9.63 and a P/S of 0.65. Analysts tend to focus on earnings, meaning that the P/E is generally the most sought-after number. CYH is technically cheaper but is more expensive in terms of P/E and P/B ratio.
Liquidity and Risk
CYH currently has a ratio of 2.10. This is higher than HCA’s ratio of 1.60 in regards to balance sheet risk. Put in simple terms, this means that over the next 12 months, CYH can cover its immediate liabilities more easily.
What Are Analysts Saying?
Cheap stock prices can sometimes serve as indicators that the stock is cheap for a good reason, and therefore not necessarily a valuable stock. A stock’s worth can be determined by measuring if its current price is substantially lower than future predictions. CYH currently sits -12.03% below its target price of $7.23, while HCA sits -19.73% below its price target of $94.00. This indicates that HCA potentially has a better upside. CYH currently has an average recommendation of 3.10, or a ‘Hold’ whereas HCA has a current score of 1.90, or a ‘Buy’.
Institutions & Insiders
CYH currently has a short ratio of 7.34, compared to HCA’s 6.08. These ratios can be used to determine how investors currently feel about the future performance of the stock. In this sense, it’s clear that the market is less bearish about HCA’s prospects.
What are the Risks?
A keen investor must always consider and weigh the risks. A good metric of this is a ‘beta’ which measures how much more or less volatile a stock is compared to an industry standard. CYH has a beta of 1.56, indicating it is 56% more volatile than the standard. HCA has a beta of 0.53, making it 47% less volatile than the standard.
The Bottom Line
Community Health Systems loses to HCA Healthcare in 10 of the 12 factors that we looked at. HCA is more profitable, has a higher liquidity, generates more returns on investment, has a higher cash conversion rate, and high cash flow per share. It is also more undervalued compared to its price target and has better signals based on investor short interest.
Featured Image: depositphotos/gunnar3000
