Advanced Micro Devices, Inc. (NASDAQ:AMD) shares are up more than 18.68% this year and recently increased 3.57% or $0.42 to settle at $12.20. ING Groep N.V. (NYSE:ING), on the other hand, is up 0.22% year to date as of 02/14/2018. It currently trades at $18.50 and has returned -1.23% during the past week.
Advanced Micro Devices, Inc. (NASDAQ:AMD) and ING Groep N.V. (NYSE:ING) 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AMD to grow earnings at a 0.40% annual rate over the next 5 years. Comparatively, ING is expected to grow at a 7.20% annual rate. All else equal, ING’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. Advanced Micro Devices, Inc. (AMD) has an EBITDA margin of 5.59%. This suggests that AMD underlying business is more profitable AMD’s ROI is -25.90% while ING has a ROI of 6.30%. The interpretation is that ING’s business generates a higher return on investment than AMD’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. AMD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, ING’s free cash flow per share was -. On a percent-of-sales basis, AMD’s free cash flow was 5.98% while ING converted 0% of its revenues into cash flow. This means that, for a given level of sales, AMD is able to generate more free cash flow for investors.
Liquidity and Financial Risk
AMD’s debt-to-equity ratio is 2.74 versus a D/E of 2.17 for ING. AMD is therefore the more solvent of the two companies, and has lower financial risk.
AMD trades at a forward P/E of 22.76, a P/B of 22.59, and a P/S of 2.19, compared to a forward P/E of 10.00, a P/B of 1.18, and a P/S of 4.34 for ING. AMD is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. AMD is currently priced at a -17.9% to its one-year price target of 14.86. Comparatively, ING is -22.27% relative to its price target of 23.80. This suggests that ING 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 2.60 for AMD and 1.00 for ING, which implies that analysts are more bullish on the outlook for AMD.
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. AMD has a beta of 2.62 and ING’s beta is 1.26. ING’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AMD has a short ratio of 3.14 compared to a short interest of 1.69 for ING. This implies that the market is currently less bearish on the outlook for ING.
ING Groep N.V. (NYSE:ING) beats Advanced Micro Devices, Inc. (NASDAQ:AMD) on a total of 9 of the 14 factors compared between the two stocks. ING is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, ING is the cheaper of the two stocks on an earnings and book value, ING is more undervalued relative to its price target. Finally, ING has better sentiment signals based on short interest.