Lakeland Bancorp, Inc. (NASDAQ:LBAI) shares are up more than 2.60% this year and recently decreased -0.91% or -$0.18 to settle at $19.57. Peapack-Gladstone Financial Corporation (NASDAQ:PGC), on the other hand, is up 0.03% year to date as of 02/07/2018. It currently trades at $34.35 and has returned -1.38% during the past week.
Lakeland Bancorp, Inc. (NASDAQ:LBAI) and Peapack-Gladstone Financial Corporation (NASDAQ:PGC) are the two most active stocks in the Regional – Northeast 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 LBAI to grow earnings at a 9.00% annual rate over the next 5 years.
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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 61.59% for Peapack-Gladstone Financial Corporation (PGC).
Cash is king when it comes to investing. On a percent-of-sales basis, LBAI’s free cash flow was 0% while PGC converted 0% of its revenues into cash flow. This means that, for a given level of sales, LBAI is able to generate more free cash flow for investors.
LBAI’s debt-to-equity ratio is 0.52 versus a D/E of 0.15 for PGC. LBAI is therefore the more solvent of the two companies, and has lower financial risk.
LBAI trades at a forward P/E of 13.56, a P/B of 1.62, and a P/S of 5.29, compared to a forward P/E of 12.89, a P/B of 1.64, and a P/S of 4.66 for PGC. LBAI 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. LBAI is currently priced at a -13.75% to its one-year price target of 22.69. Comparatively, PGC is -13.76% relative to its price target of 39.83. This suggests that PGC 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 LBAI and 2.30 for PGC, which implies that analysts are more bullish on the outlook for LBAI.
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. LBAI has a beta of 0.82 and PGC’s beta is 0.96. LBAI’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. LBAI has a short ratio of 6.92 compared to a short interest of 1.60 for PGC. This implies that the market is currently less bearish on the outlook for PGC.
Peapack-Gladstone Financial Corporation (NASDAQ:PGC) beats Lakeland Bancorp, Inc. (NASDAQ:LBAI) on a total of 8 of the 14 factors compared between the two stocks. PGC is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, PGC is the cheaper of the two stocks on an earnings and sales basis, PGC is more undervalued relative to its price target. Finally, PGC has better sentiment signals based on short interest.