Earnings

Comparing TD Ameritrade Holding Corporation (AMTD) and The Goldman Sachs Group, Inc. (GS)

TD Ameritrade Holding Corporation (NASDAQ:AMTD) shares are up more than 8.31% this year and recently decreased -0.09% or -$0.05 to settle at $55.38. The Goldman Sachs Group, Inc. (NYSE:GS), on the other hand, is up 0.30% year to date as of 02/13/2018. It currently trades at $255.53 and has returned -1.23% during the past week.

TD Ameritrade Holding Corporation (NASDAQ:AMTD) and The Goldman Sachs Group, Inc. (NYSE:GS) are the two most active stocks in the Investment Brokerage – National industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AMTD to grow earnings at a 28.08% annual rate over the next 5 years. Comparatively, GS is expected to grow at a 23.96% annual rate. All else equal, AMTD’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 67.64% for The Goldman Sachs Group, Inc. (GS). AMTD’s ROI is 9.50% while GS has a ROI of 1.30%. The interpretation is that AMTD’s business generates a higher return on investment than GS’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. AMTD’s free cash flow (“FCF”) per share for the trailing twelve months was -1.38. Comparatively, GS’s free cash flow per share was -. On a percent-of-sales basis, AMTD’s free cash flow was -21.3% while GS converted 0% of its revenues into cash flow. This means that, for a given level of sales, GS is able to generate more free cash flow for investors.

Financial Risk

AMTD’s debt-to-equity ratio is 0.36 versus a D/E of 7.67 for GS. GS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AMTD trades at a forward P/E of 14.96, a P/B of 4.22, and a P/S of 7.66, compared to a forward P/E of 10.64, a P/B of 1.36, and a P/S of 2.24 for GS. AMTD 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. AMTD is currently priced at a -13.55% to its one-year price target of 64.06. Comparatively, GS is -4.64% relative to its price target of 267.96. This suggests that AMTD 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 2.40 for AMTD and 2.60 for GS, which implies that analysts are more bullish on the outlook for GS.

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. AMTD has a beta of 1.32 and GS’s beta is 1.29. GS’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.AMTD has a short ratio of 2.21 compared to a short interest of 1.54 for GS. This implies that the market is currently less bearish on the outlook for GS.

Summary

The Goldman Sachs Group, Inc. (NYSE:GS) beats TD Ameritrade Holding Corporation (NASDAQ:AMTD) on a total of 7 of the 14 factors compared between the two stocks. GS is growing fastly and has a higher cash conversion rate. In terms of valuation, GS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, GS has better sentiment signals based on short interest.

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