Intercontinental Exchange, Inc. (NYSE:ICE) shares are up more than 5.41% this year and recently decreased -0.11% or -$0.08 to settle at $74.38. FS Investment Corporation (NYSE:FSIC), on the other hand, is up 4.08% year to date as of 01/11/2018. It currently trades at $7.65 and has returned 0.66% during the past week.
Intercontinental Exchange, Inc. (NYSE:ICE) and FS Investment Corporation (NYSE:FSIC) are the two most active stocks in the Diversified Investments 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.
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 ICE to grow earnings at a 11.15% annual rate over the next 5 years. Comparatively, FSIC is expected to grow at a 3.00% annual rate. All else equal, ICE’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. Intercontinental Exchange, Inc. (ICE) has an EBITDA margin of 58.29%. This suggests that ICE underlying business is more profitable ICE’s ROI is 7.20% while FSIC has a ROI of 5.20%. The interpretation is that ICE’s business generates a higher return on investment than FSIC’s.
Cash is king when it comes to investing. ICE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.23. Comparatively, FSIC’s free cash flow per share was -0.07.
Liquidity and Financial Risk
ICE’s debt-to-equity ratio is 0.38 versus a D/E of 0.74 for FSIC. FSIC is therefore the more solvent of the two companies, and has lower financial risk.
ICE trades at a forward P/E of 21.29, a P/B of 2.73, and a P/S of 9.34, compared to a forward P/E of 9.59, a P/B of 0.81, and a P/S of 4.50 for FSIC. ICE is the expensive 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
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”. ICE is currently priced at a -4.79% to its one-year price target of 78.12. Comparatively, FSIC is -17.74% relative to its price target of 9.30. This suggests that FSIC 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 2.00 for ICE and 2.70 for FSIC, which implies that analysts are more bullish on the outlook for FSIC.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. ICE has a beta of 0.66 and FSIC’s beta is 0.98. ICE’s shares are therefore the less volatile of the two stocks.
Intercontinental Exchange, Inc. (NYSE:ICE) beats FS Investment Corporation (NYSE:FSIC) on a total of 8 of the 13 factors compared between the two stocks. ICE is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. Finally, GGN has better sentiment signals based on short interest.