MGIC Investment Corporation (NYSE:MTG) shares are down more than -21.55% this year and recently decreased -1.86% or -$0.21 to settle at $11.07. Ball Corporation (NYSE:BLL), on the other hand, is down -1.96% year to date as of 06/13/2018. It currently trades at $37.11 and has returned 1.03% during the past week.
MGIC Investment Corporation (NYSE:MTG) and Ball Corporation (NYSE:BLL) are the two most active stocks in the Property & Casualty Insurance industry 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MTG to grow earnings at a 6.03% annual rate over the next 5 years. Comparatively, BLL is expected to grow at a 10.38% annual rate. All else equal, BLL’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 10.58% for Ball Corporation (BLL). MTG’s ROI is 13.70% while BLL has a ROI of 6.60%. The interpretation is that MTG’s business generates a higher return on investment than BLL’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. MTG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, BLL’s free cash flow per share was -0.98. On a percent-of-sales basis, MTG’s free cash flow was 11.5% while BLL converted -3.12% of its revenues into cash flow. This means that, for a given level of sales, MTG is able to generate more free cash flow for investors.Liquidity and Financial Risk
MTG’s debt-to-equity ratio is 0.26 versus a D/E of 1.85 for BLL. BLL is therefore the more solvent of the two companies, and has lower financial risk.
MTG trades at a forward P/E of 7.37, a P/B of 1.27, and a P/S of 3.83, compared to a forward P/E of 13.76, a P/B of 3.22, and a P/S of 1.15 for BLL. 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. MTG is currently priced at a -23.02% to its one-year price target of 14.38. Comparatively, BLL is -17.26% relative to its price target of 44.85. This suggests that MTG is the better investment over the next year.
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. MTG has a beta of 1.97 and BLL’s beta is 0.83. BLL’s shares are therefore the less volatile of the two stocks.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. MTG has a short ratio of 1.01 compared to a short interest of 6.18 for BLL. This implies that the market is currently less bearish on the outlook for MTG.Summary
MGIC Investment Corporation (NYSE:MTG) beats Ball Corporation (NYSE:BLL) on a total of 9 of the 14 factors compared between the two stocks. MTG is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, MTG is the cheaper of the two stocks on an earnings and book value, MTG is more undervalued relative to its price target. Finally, MTG has better sentiment signals based on short interest.