Ameris Bancorp (NASDAQ:ABCB) and WesBanco, Inc. (NASDAQ:WSBC) are the two most active stocks in the Regional – Mid-Atlantic 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.
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 ABCB to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, WSBC is expected to grow at a 10.00% annual rate. All else equal, WSBC’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. Ameris Bancorp (ABCB) has an EBITDA margin of 42.88%, compared to an EBITDA margin of 51.37% for WesBanco, Inc. (WSBC). This suggests that WSBC underlying business is more profitable. ABCB’s ROI is 24.80% while WSBC has a ROI of 14.20%. The interpretation is that ABCB’s business generates a higher return on investment than WSBC’s.
Cash is king when it comes to investing. ABCB’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, WSBC’s free cash flow per share was -0.11. On a percent-of-sales basis, ABCB’s free cash flow was -0% while WSBC converted -0% of its revenues into cash flow. This means that, for a given level of sales, ABCB is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. ABCB’s debt-to-equity ratio is 0.21 versus a D/E of 0.12 for WSBC. ABCB is therefore the more solvent of the two companies, and has lower financial risk.
ABCB trades at a forward P/E of 14.17, a P/B of 2.13, and a P/S of 6.38, compared to a forward P/E of 13.47, a P/B of 1.17, and a P/S of 5.22 for WSBC. ABCB 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
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. ABCB is currently priced at a -12.78% to its one-year price target of $51.42. Comparatively, WSBC is -13.87% relative to its price target of $42.60. This suggests that WSBC 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 2.50 for ABCB and 2.30 for WSBC, which implies that analysts are more bullish on the outlook for ABCB.
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. ABCB has a beta of 1.30 and WSBC’s beta is 0.97. WSBC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. ABCB has a short ratio of 5.86 compared to a short interest of 6.66 for WSBC. This implies that the market is currently less bearish on the outlook for ABCB.
WesBanco, Inc. (NASDAQ:WSBC) beats Ameris Bancorp (NASDAQ:ABCB) on a total of 9 of the 13 factors compared between the two stocks. WSBC generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, WSBC is the cheaper of the two stocks on an earnings, book value and sales basis, WSBC is more undervalued relative to its price target. Finally, SBCF has better sentiment signals based on short interest.