Franklin Resources, Inc. (NYSE:BEN) shares are down more than -8.08% this year and recently decreased -1.56% or -$0.63 to settle at $39.83. Alamos Gold Inc. (NYSE:AGI), on the other hand, is down -24.27% year to date as of 03/12/2018. It currently trades at $4.93 and has returned -6.27% during the past week.
Franklin Resources, Inc. (NYSE:BEN) and Alamos Gold Inc. (NYSE:AGI) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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 BEN to grow earnings at a 6.07% annual rate over the next 5 years.
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., compared to an EBITDA margin of 19.83% for Alamos Gold Inc. (AGI).
Cash is king when it comes to investing. BEN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.65. Comparatively, AGI’s free cash flow per share was +0.03. On a percent-of-sales basis, BEN’s free cash flow was 5.61% while AGI converted 0% of its revenues into cash flow. This means that, for a given level of sales, BEN is able to generate more free cash flow for investors.
BEN trades at a forward P/E of 11.77, a P/B of 1.87, and a P/S of 3.33, compared to a forward P/E of 15.90, a P/B of 0.72, and a P/S of 2.73 for AGI. BEN is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
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. BEN is currently priced at a -8.18% to its one-year price target of 43.38. Comparatively, AGI is -44.1% relative to its price target of 8.82. This suggests that AGI 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 3.20 for BEN and 2.20 for AGI, which implies that analysts are more bullish on the outlook for BEN.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. BEN has a short ratio of 2.77 compared to a short interest of 1.64 for AGI. This implies that the market is currently less bearish on the outlook for AGI.
Alamos Gold Inc. (NYSE:AGI) beats Franklin Resources, Inc. (NYSE:BEN) on a total of 7 of the 14 factors compared between the two stocks. AGI is growing fastly. In terms of valuation, AGI is the cheaper of the two stocks on book value and sales basis, AGI is more undervalued relative to its price target. Finally, AGI has better sentiment signals based on short interest.