Global

Dissecting the Numbers for Ambev S.A. (ABEV) and JPMorgan Chase & Co. (JPM)

Ambev S.A. (NYSE:ABEV) shares are up more than 3.25% this year and recently decreased -1.19% or -$0.08 to settle at $6.67. JPMorgan Chase & Co. (NYSE:JPM), on the other hand, is up 3.06% year to date as of 04/16/2018. It currently trades at $110.21 and has returned -0.17% during the past week.

Ambev S.A. (NYSE:ABEV) and JPMorgan Chase & Co. (NYSE:JPM) are the two most active stocks in the Beverages – Brewers industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

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 ABEV to grow earnings at a 5.33% annual rate over the next 5 years. Comparatively, JPM is expected to grow at a 10.74% annual rate. All else equal, JPM’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 59.74% for JPMorgan Chase & Co. (JPM).

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. ABEV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.18. Comparatively, JPM’s free cash flow per share was -. On a percent-of-sales basis, ABEV’s free cash flow was 18.75% while JPM converted 0% of its revenues into cash flow. This means that, for a given level of sales, ABEV is able to generate more free cash flow for investors.

Valuation

ABEV trades at a forward P/E of 21.52, a P/B of 7.68, and a P/S of 7.37, compared to a forward P/E of 11.23, a P/B of 1.68, and a P/S of 6.00 for JPM. ABEV is the expensive 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

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”. ABEV is currently priced at a -6.71% to its one-year price target of 7.15. Comparatively, JPM is -9.8% relative to its price target of 122.19. This suggests that JPM is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. ABEV has a short ratio of 1.06 compared to a short interest of 1.53 for JPM. This implies that the market is currently less bearish on the outlook for ABEV.

Summary

JPMorgan Chase & Co. (NYSE:JPM) beats Ambev S.A. (NYSE:ABEV) on a total of 8 of the 14 factors compared between the two stocks. JPM has higher cash flow per share, is more profitable and generates a higher return on investment. In terms of valuation, JPM is the cheaper of the two stocks on an earnings, book value and sales basis, JPM is more undervalued relative to its price target. Finally, ICE has better sentiment signals based on short interest.

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