Opus Bank (NASDAQ:OPB) and Green Bancorp, Inc. (NASDAQ:GNBC) are the two most active stocks in the Money Center Banks industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. OPB’s ROI is 10.60% while GNBC has a ROI of 14.50%. The interpretation is that GNBC’s business generates a higher return on investment than OPB’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. OPB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.69. Comparatively, GNBC’s free cash flow per share was +0.65. On a percent-of-sales basis, OPB’s free cash flow was 0.01% while GNBC converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, OPB is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. OPB’s debt-to-equity ratio is 0.13 versus a D/E of 0.11 for GNBC. OPB is therefore the more solvent of the two companies, and has lower financial risk.
OPB trades at a forward P/E of 14.53, a P/B of 0.86, and a P/S of 3.81, compared to a forward P/E of 14.47, a P/B of 1.84, and a P/S of 5.24 for GNBC. 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. OPB is currently priced at a -9.61% to its one-year price target of $25.50. Comparatively, GNBC is -5.67% relative to its price target of $23.80. This suggests that OPB 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 2.80 for OPB and 2.40 for GNBC, which implies that analysts are more bullish on the outlook for OPB.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. OPB has a beta of 1.06.
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. OPB has a short ratio of 6.24 compared to a short interest of 7.14 for GNBC. This implies that the market is currently less bearish on the outlook for OPB.
Opus Bank (NASDAQ:OPB) beats Green Bancorp, Inc. (NASDAQ:GNBC) on a total of 5 of the 10 factors compared between the two stocks. OPB has higher cash flow per share. In terms of valuation, OPB is the cheaper of the two stocks on book value and sales basis, OPB is more undervalued relative to its price target. Finally, OPB has better sentiment signals based on short interest.