United Community Banks, Inc. (NASDAQ:UCBI) and The Bancorp, Inc. (NASDAQ:TBBK) 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect UCBI to grow earnings at a 1.00% annual rate over the next 5 years. Comparatively, TBBK is expected to grow at a 12.00% annual rate. All else equal, TBBK’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. United Community Banks, Inc. (UCBI) has an EBITDA margin of 54.28%, compared to an EBITDA margin of 7.66% for The Bancorp, Inc. (TBBK). This suggests that UCBI underlying business is more profitable. UCBI’s ROI is 19.80% while TBBK has a ROI of 17.20%. The interpretation is that UCBI’s business generates a higher return on investment than TBBK’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. UCBI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.41. Comparatively, TBBK’s free cash flow per share was -0.04. On a percent-of-sales basis, UCBI’s free cash flow was 0.01% while TBBK converted -0% of its revenues into cash flow. This means that, for a given level of sales, UCBI 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. UCBI’s debt-to-equity ratio is 0.15 versus a D/E of 0.17 for TBBK. TBBK is therefore the more solvent of the two companies, and has lower financial risk.
UCBI trades at a forward P/E of 14.26, a P/B of 1.67, and a P/S of 5.28, compared to a forward P/E of 13.03, a P/B of 1.26, and a P/S of 3.83 for TBBK. UCBI 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. UCBI is currently priced at a -14.87% to its one-year price target of $30.94. Comparatively, TBBK is -9.21% relative to its price target of $8.25. This suggests that UCBI 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 2.40 for UCBI and 2.30 for TBBK, which implies that analysts are more bullish on the outlook for UCBI.
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. UCBI has a beta of 0.88 and TBBK’s beta is 1.09. UCBI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. UCBI has a short ratio of 4.30 compared to a short interest of 7.73 for TBBK. This implies that the market is currently less bearish on the outlook for UCBI.
United Community Banks, Inc. (NASDAQ:UCBI) beats The Bancorp, Inc. (NASDAQ:TBBK) on a total of 8 of the 13 factors compared between the two stocks. UCBI 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. UCBI is more undervalued relative to its price target. Finally, UCBI has better sentiment signals based on short interest.