JPMorgan Chase & Co. (NYSE:JPM) shares are up more than 7.56% this year and recently increased 2.31% or $2.6 to settle at $115.03. Infosys Limited (NYSE:INFY), on the other hand, is up 8.32% year to date as of 02/14/2018. It currently trades at $17.57 and has returned 0.51% during the past week.
JPMorgan Chase & Co. (NYSE:JPM) and Infosys Limited (NYSE:INFY) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect JPM to grow earnings at a 9.18% annual rate over the next 5 years. Comparatively, INFY is expected to grow at a 9.00% annual rate. All else equal, JPM’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. JPMorgan Chase & Co. (JPM) has an EBITDA margin of 58.87%. This suggests that JPM underlying business is more profitable JPM’s ROI is 5.90% while INFY has a ROI of 16.40%. The interpretation is that INFY’s business generates a higher return on investment than JPM’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, JPM’s free cash flow was 0% while INFY converted 50.21% of its revenues into cash flow. This means that, for a given level of sales, INFY is able to generate more free cash flow for investors.
Liquidity and Financial Risk
JPM’s debt-to-equity ratio is 1.24 versus a D/E of 0.00 for INFY. JPM is therefore the more solvent of the two companies, and has lower financial risk.
JPM trades at a forward P/E of 11.77, a P/B of 1.74, and a P/S of 6.29, compared to a forward P/E of 16.42, a P/B of 3.55, and a P/S of 3.59 for INFY. 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. JPM is currently priced at a -2.55% to its one-year price target of 118.04. Comparatively, INFY is 3.54% relative to its price target of 16.97. This suggests that JPM 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 2.50 for JPM and 2.80 for INFY, which implies that analysts are more bullish on the outlook for INFY.
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. JPM has a beta of 1.16 and INFY’s beta is 0.58. INFY’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. JPM has a short ratio of 2.04 compared to a short interest of 14.73 for INFY. This implies that the market is currently less bearish on the outlook for JPM.
Infosys Limited (NYSE:INFY) beats JPMorgan Chase & Co. (NYSE:JPM) on a total of 7 of the 14 factors compared between the two stocks. INFY is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, CSX has better sentiment signals based on short interest.