MoneyGram International, Inc. (NASDAQ:MGI) shares are down more than -7.59% this year and recently increased 0.50% or $0.06 to settle at $12.18. OneMain Holdings, Inc. (NYSE:OMF), on the other hand, is up 31.17% year to date as of 01/11/2018. It currently trades at $34.09 and has returned -0.90% during the past week.
MoneyGram International, Inc. (NASDAQ:MGI) and OneMain Holdings, Inc. (NYSE:OMF) are the two most active stocks in the Credit Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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 MGI to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, OMF is expected to grow at a 8.85% annual rate. All else equal, MGI’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. MoneyGram International, Inc. (MGI) has an EBITDA margin of 12.88%. This suggests that MGI underlying business is more profitable MGI’s ROI is 11.70% while OMF has a ROI of 1.40%. The interpretation is that MGI’s business generates a higher return on investment than OMF’s.
Cash is king when it comes to investing. MGI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.54. Comparatively, OMF’s free cash flow per share was +3.68. On a percent-of-sales basis, MGI’s free cash flow was 1.8% while OMF converted 12.83% of its revenues into cash flow. This means that, for a given level of sales, OMF is able to generate more free cash flow for investors.
MGI trades at a forward P/E of 10.88, and a P/S of 0.37, compared to a forward P/E of 7.53, a P/B of 1.43, and a P/S of 1.25 for OMF. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MGI is currently priced at a -10.9% to its one-year price target of 13.67. Comparatively, OMF is -3.78% relative to its price target of 35.43. This suggests that MGI 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 3.20 for MGI and 2.10 for OMF, which implies that analysts are more bullish on the outlook for MGI.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MGI has a beta of 1.92 and OMF’s beta is 2.82. MGI’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.MGI has a short ratio of 3.58 compared to a short interest of 3.16 for OMF. This implies that the market is currently less bearish on the outlook for OMF.
MoneyGram International, Inc. (NASDAQ:MGI) beats OneMain Holdings, Inc. (NYSE:OMF) on a total of 9 of the 14 factors compared between the two stocks. MGI is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, MGI is the cheaper of the two stocks on book value and sales basis, MGI is more undervalued relative to its price target. Finally, NTAP has better sentiment signals based on short interest.