ICICI Bank Limited (NYSE:IBN) shares are down more than -5.45% this year and recently increased 1.21% or $0.11 to settle at $9.20. BGC Partners, Inc. (NASDAQ:BGCP), on the other hand, is down -8.07% year to date as of 03/08/2018. It currently trades at $13.89 and has returned 6.03% during the past week.
ICICI Bank Limited (NYSE:IBN) and BGC Partners, Inc. (NASDAQ:BGCP) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect IBN to grow earnings at a 22.00% annual rate over the next 5 years. Comparatively, BGCP is expected to grow at a 12.50% annual rate. All else equal, IBN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 14.65% for BGC Partners, Inc. (BGCP). IBN’s ROI is 2.70% while BGCP has a ROI of -0.20%. The interpretation is that IBN’s business generates a higher return on investment than BGCP’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 BGCP converted 0% of its revenues into cash flow. This means that, for a given level of sales, IBN is able to generate more free cash flow for investors.
IBN trades at a forward P/E of 15.01, and a P/S of 6.40, compared to a forward P/E of 9.61, a P/B of 6.37, and a P/S of 1.26 for BGCP. IBN is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. IBN is currently priced at a -36.55% to its one-year price target of 14.50. Comparatively, BGCP is -20.63% relative to its price target of 17.50. 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 1.50 for BGCP, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. IBN has a beta of 1.91 and BGCP’s beta is 1.13. BGCP’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 0.96 compared to a short interest of 0.73 for BGCP. This implies that the market is currently less bearish on the outlook for BGCP.
ICICI Bank Limited (NYSE:IBN) beats BGC Partners, Inc. (NASDAQ:BGCP) on a total of 6 of the 14 factors compared between the two stocks. IBN is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. IBN is more undervalued relative to its price target. Finally, NVDA has better sentiment signals based on short interest.