Fiat Chrysler Automobiles N.V. (NYSE:FCAU) shares are up more than 25.22% this year and recently increased 3.71% or $0.8 to settle at $22.34. American Airlines Group Inc. (NASDAQ:AAL), on the other hand, is down -1.85% year to date as of 02/14/2018. It currently trades at $51.07 and has returned -0.64% during the past week.
Fiat Chrysler Automobiles N.V. (NYSE:FCAU) and American Airlines Group Inc. (NASDAQ:AAL) 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect FCAU to grow earnings at a 20.11% annual rate over the next 5 years. Comparatively, AAL is expected to grow at a 9.94% annual rate. All else equal, FCAU’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 10.14% for American Airlines Group Inc. (AAL).
Cash is king when it comes to investing. On a percent-of-sales basis, FCAU’s free cash flow was 0% while AAL converted 0% of its revenues into cash flow. This means that, for a given level of sales, FCAU is able to generate more free cash flow for investors.
FCAU trades at a forward P/E of 5.54, a P/B of 1.37, and a P/S of 0.25, compared to a forward P/E of 7.40, a P/B of 6.27, and a P/S of 0.58 for AAL. FCAU 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. FCAU is currently priced at a -34.91% to its one-year price target of 34.32. Comparatively, AAL is -20.41% relative to its price target of 64.17. This suggests that FCAU 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 FCAU and 2.10 for AAL, which implies that analysts are more bullish on the outlook for AAL.
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. FCAU has a short ratio of 4.13 compared to a short interest of 4.45 for AAL. This implies that the market is currently less bearish on the outlook for FCAU.
Fiat Chrysler Automobiles N.V. (NYSE:FCAU) beats American Airlines Group Inc. (NASDAQ:AAL) on a total of 9 of the 14 factors compared between the two stocks. FCAU is growing fastly and has lower financial risk. In terms of valuation, FCAU is the cheaper of the two stocks on an earnings, book value and sales basis, FCAU is more undervalued relative to its price target. Finally, FCAU has better sentiment signals based on short interest.