ICICI Bank Limited (NYSE:IBN) shares are up more than 4.83% this year and recently increased 0.20% or $0.02 to settle at $10.20. HCP, Inc. (NYSE:HCP), on the other hand, is down -16.53% year to date as of 02/14/2018. It currently trades at $21.77 and has returned -6.89% during the past week.
ICICI Bank Limited (NYSE:IBN) and HCP, Inc. (NYSE:HCP) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect IBN to grow earnings at a 22.00% annual rate over the next 5 years. Comparatively, HCP is expected to grow at a 2.50% annual rate. All else equal, IBN’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. EBITDA margin of 25.67% for HCP, Inc. (HCP). IBN’s ROI is 2.70% while HCP has a ROI of 4.50%. The interpretation is that HCP’s business generates a higher return on investment than IBN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, IBN’s free cash flow was 0% while HCP converted 0.44% of its revenues into cash flow. This means that, for a given level of sales, HCP is able to generate more free cash flow for investors.
IBN trades at a forward P/E of 16.50, and a P/S of 7.18, compared to a forward P/E of 28.76, a P/B of 1.85, and a P/S of 6.47 for HCP. 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. IBN is currently priced at a -29.66% to its one-year price target of 14.50. Comparatively, HCP is -21.63% relative to its price target of 27.78. This suggests that IBN 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 1.50 for IBN and 2.80 for HCP, which implies that analysts are more bullish on the outlook for HCP.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. IBN has a beta of 1.71 and HCP’s beta is 0.31. HCP’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.IBN has a short ratio of 0.81 compared to a short interest of 1.88 for HCP. This implies that the market is currently less bearish on the outlook for IBN.
ICICI Bank Limited (NYSE:IBN) beats HCP, Inc. (NYSE:HCP) on a total of 8 of the 14 factors compared between the two stocks. IBN is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, IBN is the cheaper of the two stocks on an earnings and book value, IBN is more undervalued relative to its price target. Finally, IBN has better sentiment signals based on short interest.