CalAmp Corp. (CAMP +0.00%) is a machine-to-machine (M2M) specialist that sells hardware and software solutions to companies that allow them to connect things like smart speakers and cars to the internet. The company's bet that more and more businesses will want to bring formerly unconnected things online means CalAmp is growing into a smart play on the Internet of Things (IoT) market.
NVIDIA Corporation (NVDA 0.98%) makes graphics processing units (GPUs) that are used primarily for the PC gaming market, and it is expanding into processors for data centers running artificial intelligence (AI) software and for semi-autonomous driving technology.
Both companies are clearly betting on potentially lucrative tech trends, but which is the better buy? Let's compare them based on their financial fortitude, competitive advantages, and current valuation to find out.
Image source: Getty Images.
Financial fortitude
|
Company |
Cash |
Debt |
Free Cash Flow (TTM) |
|---|---|---|---|
|
CalAmp |
$151.2 million |
$152.3 million |
$57 million |
|
NVIDIA |
$7.1 billion |
$2 billion |
$2.9 billion |
Data sources: Yahoo Finance! and Morningstar. TTM = trailing 12 months.
CalAmp isn't doing poorly financially, but the company's debt relative to its cash isn't ideal. Its business is growing, but the company's financials can't keep pace with NVIDIA's.
NVIDIA also has debt, but it has much more cash on hand to offset its debt responsibilities, a longer history of positive net income, and its core business of GPU sales in the gaming segment is still experiencing double-digit percentage growth.
Winner: NVIDIA
Competitive advantage
Investors should always be looking for companies that have some sort of competitive advantage over their peers. Unfortunately for CalAmp, the company doesn't appear to have one right now. CalAmp is a small company (its market cap is just $855 million) and it's in the evolving IoT market, which means that there's lots of competition emerging from big and small players and everyone is trying to carve out their niche. IoT tech spending will reach $772 billion this year, which represents a huge opportunity for CalAmp, but the company doesn't have any technology software that couldn't be easily duplicated by competitors.
Meanwhile, NVIDIA is firmly established as a leader in the discrete desktop GPU space and currently holds about 73% that market. NVIDIA is also also wisely diversifying its chip business into semi-autonomous vehicles, artificial intelligence, and data centers. The company has an early lead against rivals Intel and AMD in some of these markets (though Intel dominates servers), which means that while NVIDIA is doing well, it's certainly not bulletproof.
Winner: NVIDIA
Valuation
In addition to competitive advantages and financial fortitude, it's also a good idea to compare companies based on their current price-to-earnings ratios (P/E); their forward P/E, which looks at future earnings projections; and their enterprise value-to-EBITDA ratios.
|
Company |
P/E Ratio (TTM) |
Forward P/E |
EV/EBITDA |
|---|---|---|---|
|
CalAmp |
50.78 |
18.37 |
29.9 |
|
NVIDIA |
51.72 |
34.34 |
42.65 |
Data source: Yahoo! Finance. TTM = trailing 12 months.
Both NVIDIA's and CalAmp's shares are trading at premium when you compare their trailing P/E ratios to the average P/E of 25 for companies in S&P 500. But CalAmp's share price relative to its forward earnings is a much more conservative 18 times earnings, compared to NVIDIA's 34 times earnings.
The average EV/EBITDA for companies in the S&P 500 is about 17, so both CalAmp and NVIDIA look overpriced based on that metric. But considering that CalAmp's metrics look more favorable overall, it gets the win in the valuation category.
Winner: CalAmp
The verdict
NVIDIA is the winner in this matchup based on the three criteria that we compared. That's not to say that CalAmp isn't a good investment -- its shares have gained about 45% over the past 12 months -- but when compared to NVIDIA, CalAmp looks like a more vulnerable company.
Investors should also keep in mind that much of NVIDIA's recent share price growth (145% over the past year) has been fueled by its early moves in semi-autonomous driving technology and artificial intelligence. Both segments have lots of potential, but they don't make up much of NVIDIA's top or bottom lines right now. Investors jumping into NVIDIA's stock should know that they're buying a company that earns about 60% of its revenue from GPUs and less than 5% from its automotive business.
