Bank of America Corporation (NYSE:BAC) shares are up more than 3.49% this year and recently increased 0.93% or $0.28 to settle at $30.55. Sterling Bancorp (NYSE:STL), on the other hand, is up 4.07% year to date as of 01/10/2018. It currently trades at $25.60 and has returned 4.70% during the past week.

Bank of America Corporation (NYSE:BAC) and Sterling Bancorp (NYSE:STL) are the two most active stocks in the Money Center Banks 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect BAC to grow earnings at a 14.74% annual rate over the next 5 years. Comparatively, STL is expected to grow at a 6.50% annual rate. All else equal, BAC’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 69.9% for Sterling Bancorp (STL). BAC’s ROI is 4.60% while STL has a ROI of 14.90%. The interpretation is that STL’s business generates a higher return on investment than BAC’s.

**Cash Flow **

The amount of free cash flow available to investors is ultimately what determines the value of a stock. BAC’s free cash flow (“FCF”) per share for the trailing twelve months was +2.40. Comparatively, STL’s free cash flow per share was +0.38. On a percent-of-sales basis, BAC’s free cash flow was 26.73% while STL converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, BAC is able to generate more free cash flow for investors.

**Financial Risk**

BAC’s debt-to-equity ratio is 1.79 versus a D/E of 0.22 for STL. BAC is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

BAC trades at a forward P/E of 13.36, a P/B of 1.25, and a P/S of 5.73, compared to a forward P/E of 14.17, a P/B of 1.76, and a P/S of 10.77 for STL. BAC is the cheaper 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**

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. BAC is currently priced at a -3.17% to its one-year price target of 31.55. Comparatively, STL is 73.56% relative to its price target of 14.75. This suggests that BAC is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for BAC and 2.50 for STL, which implies that analysts are more bullish on the outlook for STL.

**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. BAC has a beta of 1.41 and STL’s beta is 1.12. STL’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. BAC has a short ratio of 2.24 compared to a short interest of 5.14 for STL. This implies that the market is currently less bearish on the outlook for BAC.

**Summary**

Bank of America Corporation (NYSE:BAC) beats Sterling Bancorp (NYSE:STL) on a total of 10 of the 14 factors compared between the two stocks. BAC is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, BAC is the cheaper of the two stocks on an earnings, book value and sales basis, BAC is more undervalued relative to its price target. Finally, BAC has better sentiment signals based on short interest.