American International Group, Inc. (NYSE:AIG) shares are down more than -0.29% this year and recently decreased -0.03% or -$0.02 to settle at $59.41. FireEye, Inc. (NASDAQ:FEYE), on the other hand, is up 16.76% year to date as of 02/14/2018. It currently trades at $16.58 and has returned 17.01% during the past week.
American International Group, Inc. (NYSE:AIG) and FireEye, Inc. (NASDAQ:FEYE) are the two most active stocks in the market 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AIG to grow earnings at a 43.40% annual rate over the next 5 years. Comparatively, FEYE is expected to grow at a 15.00% annual rate. All else equal, AIG’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. American International Group, Inc. (AIG) has an EBITDA margin of 4.82%. This suggests that AIG underlying business is more profitable AIG’s ROI is 0.40% while FEYE has a ROI of -27.50%. The interpretation is that AIG’s business generates a higher return on investment than FEYE’s.
The value of a stock is simply the present value of its future free cash flows. AIG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.22. Comparatively, FEYE’s free cash flow per share was +0.09. On a percent-of-sales basis, AIG’s free cash flow was -0.38% while FEYE converted 0% of its revenues into cash flow. This means that, for a given level of sales, FEYE is able to generate more free cash flow for investors.
Liquidity and Financial Risk
AIG’s debt-to-equity ratio is 0.43 versus a D/E of 1.00 for FEYE. FEYE is therefore the more solvent of the two companies, and has lower financial risk.
AIG trades at a forward P/E of 9.87, a P/B of 0.74, and a P/S of 1.08, compared to a forward P/E of 110.53, a P/B of 3.88, and a P/S of 4.06 for FEYE. AIG 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
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. AIG is currently priced at a -11.71% to its one-year price target of 67.29. Comparatively, FEYE is -2.98% relative to its price target of 17.09. This suggests that AIG 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 AIG and 2.40 for FEYE, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. AIG has a beta of 1.16 and FEYE’s beta is 0.58. FEYE’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. AIG has a short ratio of 3.64 compared to a short interest of 7.18 for FEYE. This implies that the market is currently less bearish on the outlook for AIG.
American International Group, Inc. (NYSE:AIG) beats FireEye, Inc. (NASDAQ:FEYE) on a total of 9 of the 14 factors compared between the two stocks. AIG is growing fastly, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, AIG is the cheaper of the two stocks on an earnings, book value and sales basis, AIG is more undervalued relative to its price target. Finally, AIG has better sentiment signals based on short interest.