ICICI Bank Limited (NYSE:IBN) shares are down more than -8.63% this year and recently decreased -3.05% or -$0.28 to settle at $8.89. R.R. Donnelley & Sons Company (NYSE:RRD), on the other hand, is down -31.83% year to date as of 05/15/2018. It currently trades at $6.34 and has returned -5.65% during the past week.
ICICI Bank Limited (NYSE:IBN) and R.R. Donnelley & Sons Company (NYSE:RRD) are the two most active stocks in the Money Center Banks 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 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, RRD is expected to grow at a -5.00% annual rate. All else equal, IBN’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 4.22% for R.R. Donnelley & Sons Company (RRD). IBN’s ROI is 2.70% while RRD has a ROI of 11.00%. The interpretation is that RRD’s business generates a higher return on investment than IBN’s.Cash Flow
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 RRD converted -2.47% 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.Valuation
IBN trades at a forward P/E of 19.24, and a P/S of 6.38, compared to a forward P/E of 6.34, and a P/S of 0.06 for RRD. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. IBN is currently priced at a -32.91% to its one-year price target of 13.25. Comparatively, RRD is -47.17% relative to its price target of 12.00. This suggests that RRD is the better investment over the next year.
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. IBN has a beta of 1.95 and RRD’s beta is 1.57. RRD’s shares are therefore the less volatile of the two stocks.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. IBN has a short ratio of 1.05 compared to a short interest of 3.49 for RRD. This implies that the market is currently less bearish on the outlook for IBN.Summary
R.R. Donnelley & Sons Company (NYSE:RRD) beats ICICI Bank Limited (NYSE:IBN) on a total of 8 of the 13 factors compared between the two stocks. RRD is growing fastly, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, RRD is the cheaper of the two stocks on an earnings and sales basis, RRD is more undervalued relative to its price target. Finally, LUK has better sentiment signals based on short interest.