Independent Bank Group, Inc. (NASDAQ:IBTX) shares are up more than 2.56% this year and recently decreased -0.47% or -$0.3 to settle at $64.00. Auburn National Bancorporation, Inc. (NASDAQ:AUBN), on the other hand, is up 14.05% year to date as of 11/22/2017. It currently trades at $35.71 and has returned 2.03% during the past week.
Independent Bank Group, Inc. (NASDAQ:IBTX) and Auburn National Bancorporation, Inc. (NASDAQ:AUBN) are the two most active stocks in the Regional – Southeast Banks 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.
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 IBTX to grow earnings at a 10.00% annual rate over the next 5 years.
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. , compared to an EBITDA margin of 59.64% for Auburn National Bancorporation, Inc. (AUBN). IBTX’s ROI is 18.50% while AUBN has a ROI of 23.60%. The interpretation is that AUBN’s business generates a higher return on investment than IBTX’s.
The value of a stock is simply the present value of its future free cash flows. IBTX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.98. Comparatively, AUBN’s free cash flow per share was +0.37. On a percent-of-sales basis, IBTX’s free cash flow was 0.01% while AUBN converted 0% of its revenues into cash flow. This means that, for a given level of sales, IBTX is able to generate more free cash flow for investors.
IBTX’s debt-to-equity ratio is 0.00 versus a D/E of 0.04 for AUBN. AUBN is therefore the more solvent of the two companies, and has lower financial risk.
IBTX trades at a forward P/E of 15.17, a P/B of 1.38, and a P/S of 6.41, compared to a P/B of 1.50, and a P/S of 4.75 for AUBN. IBTX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. IBTX is currently priced at a -10.65% to its one-year price target of 71.63. Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. IBTX has a beta of 1.28 and AUBN’s beta is 0.25. AUBN’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.IBTX has a short ratio of 5.44 compared to a short interest of 0.08 for AUBN. This implies that the market is currently less bearish on the outlook for AUBN.
Independent Bank Group, Inc. (NASDAQ:IBTX) beats Auburn National Bancorporation, Inc. (NASDAQ:AUBN) on a total of 7 of the 13 factors compared between the two stocks. IBTX is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, ACFC has better sentiment signals based on short interest.