Critical Analysis: TrueCar (NASDAQ:TRUE) versus Rakuten (OTCMKTS:RKUNY)

Rakuten (OTCMKTS:RKUNY) and TrueCar (NASDAQ:TRUE) are both computer and technology companies, but which is the better stock? We will contrast the two companies based on the strength of their valuation, risk, earnings, institutional ownership, profitability, dividends and analyst recommendations.

Profitability

This table compares Rakuten and TrueCar’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Rakuten	-7.13%	-14.73%	-0.66%
TrueCar	-10.27%	-23.76%	-18.02%

Institutional and Insider Ownership

79.4% of TrueCar shares are owned by institutional investors. 3.9% of TrueCar shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Rakuten and TrueCar, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Rakuten	1	0	0	2	3.00
TrueCar	2	5	0	0	1.71

TrueCar has a consensus target price of $2.65, indicating a potential upside of 4.33%. Given TrueCar’s higher possible upside, analysts clearly believe TrueCar is more favorable than Rakuten.

Valuation and Earnings

This table compares Rakuten and TrueCar”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Rakuten	$16.70 billion	0.60	-$1.19 billion	($0.54)	-8.48
TrueCar	$181.22 million	1.25	-$31.05 million	($0.22)	-11.55

TrueCar has lower revenue, but higher earnings than Rakuten. TrueCar is trading at a lower price-to-earnings ratio than Rakuten, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Rakuten has a beta of 1.21, suggesting that its stock price is 21% more volatile than the S&P 500. Comparatively, TrueCar has a beta of 2.22, suggesting that its stock price is 122% more volatile than the S&P 500.

About Rakuten

Rakuten Group, Inc. provides services in e-commerce, fintech, digital content, and communications to various users in Japan and internationally. The company operates through three segments: Internet Services, FinTech, and Mobile. The Internet Services segment provides range of e-commerce sites, such as Rakuten Ichiba, an Internet shopping mall, online cash-back sites, travel booking sites, portal sites, and digital content sites. It also offers messaging services and sells advertising; and manages professional sport teams. The FinTech segment offers financial services over the internet related to banking and securities, credit cards, life insurance, general insurance, electronic payment business, crypto asset (virtual currency) spot transaction, etc. The Mobile segment provides communication services and technology, electricity supply, and digital content site services. The company was formerly known as Rakuten, Inc. and changed its name to Rakuten Group, Inc. in April 2021. Rakuten Group, Inc. was incorporated in 1997 and is headquartered in Setagaya, Japan.

About TrueCar

TrueCar, Inc. operates as an internet-based information, technology, and communication services company in the United States. It operates its platform on the TrueCar website and mobile applications. Its platform enables users to obtain market-based pricing data on new and used cars, and to connect with its network of TrueCar certified dealers. The company also offers forecast and consulting services regarding determination of the residual value of an automobile at given future points in time, which are used to underwrite automotive loans and leases, and by financial institutions to measure exposure and risk across loan, lease, and fleet portfolios. In addition, it provides TrueCar Trade, which gives consumers information on the value of their trade-in vehicles and enables them to obtain a guaranteed trade-in price before setting foot in the dealership; and DealerScience that provides dealers with advanced digital retailing software tools. The company was formerly known as Zag.com Inc. The company was incorporated in 2005 and is headquartered in Santa Monica, California.