SLM Corporation (NASDAQ:SLM) shares are up more than 0.35% this year and recently increased 0.62% or $0.07 to settle at $11.34. United Continental Holdings, Inc. (NYSE:UAL), on the other hand, is up 6.82% year to date as of 03/12/2018. It currently trades at $72.00 and has returned 7.13% during the past week.
SLM Corporation (NASDAQ:SLM) and United Continental Holdings, Inc. (NYSE:UAL) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SLM to grow earnings at a 25.86% annual rate over the next 5 years. Comparatively, UAL is expected to grow at a 7.81% annual rate. All else equal, SLM’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 13.86% for United Continental Holdings, Inc. (UAL). SLM’s ROI is 1.50% while UAL has a ROI of 10.50%. The interpretation is that UAL’s business generates a higher return on investment than SLM’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, SLM’s free cash flow was 0% while UAL converted -0.96% of its revenues into cash flow. This means that, for a given level of sales, SLM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
SLM’s debt-to-equity ratio is 9.05 versus a D/E of 1.63 for UAL. SLM is therefore the more solvent of the two companies, and has lower financial risk.
SLM trades at a forward P/E of 9.57, a P/B of 2.36, and a P/S of 3.41, compared to a forward P/E of 7.89, a P/B of 2.37, and a P/S of 0.55 for UAL. SLM 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
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. SLM is currently priced at a -24.85% to its one-year price target of 15.09. Comparatively, UAL is -12.53% relative to its price target of 82.31. This suggests that SLM 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 1.60 for SLM and 2.30 for UAL, which implies that analysts are more bullish on the outlook for UAL.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. SLM has a beta of 1.30 and UAL’s beta is 0.89. UAL’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. SLM has a short ratio of 5.99 compared to a short interest of 3.26 for UAL. This implies that the market is currently less bearish on the outlook for UAL.
United Continental Holdings, Inc. (NYSE:UAL) beats SLM Corporation (NASDAQ:SLM) on a total of 7 of the 14 factors compared between the two stocks. UAL is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, UAL is the cheaper of the two stocks on an earnings and sales basis, Finally, UAL has better sentiment signals based on short interest.