CSX Corporation (NASDAQ:CSX) shares are up more than 0.25% this year and recently increased 2.97% or $1.59 to settle at $55.15. The Charles Schwab Corporation (NYSE:SCHW), on the other hand, is up 2.01% year to date as of 02/14/2018. It currently trades at $52.40 and has returned 0.71% during the past week.

CSX Corporation (NASDAQ:CSX) and The Charles Schwab Corporation (NYSE:SCHW) are the two most active stocks in the market 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.

**Growth**

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CSX to grow earnings at a 16.91% annual rate over the next 5 years. Comparatively, SCHW is expected to grow at a 29.03% annual rate. All else equal, SCHW’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., compared to an EBITDA margin of 93.72% for The Charles Schwab Corporation (SCHW). CSX’s ROI is 22.60% while SCHW has a ROI of 1.00%. The interpretation is that CSX’s business generates a higher return on investment than SCHW’s.

**Cash Flow **

Earnings don’t always accurately reflect the amount of cash that a company brings in. CSX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.16. Comparatively, SCHW’s free cash flow per share was -. On a percent-of-sales basis, CSX’s free cash flow was -1.24% while SCHW converted 0% of its revenues into cash flow. This means that, for a given level of sales, SCHW is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

CSX’s debt-to-equity ratio is 0.80 versus a D/E of 11.38 for SCHW. SCHW is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

CSX trades at a forward P/E of 15.29, a P/B of 3.36, and a P/S of 4.28, compared to a forward P/E of 18.57, a P/B of 4.60, and a P/S of 7.65 for SCHW. CSX is the cheaper 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. CSX is currently priced at a -13.2% to its one-year price target of 63.54. Comparatively, SCHW is -12.94% relative to its price target of 60.19. This suggests that CSX 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 2.20 for CSX and 2.30 for SCHW, which implies that analysts are more bullish on the outlook for SCHW.

**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. CSX has a beta of 1.27 and SCHW’s beta is 1.53. CSX’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CSX has a short ratio of 1.73 compared to a short interest of 2.86 for SCHW. This implies that the market is currently less bearish on the outlook for CSX.

**Summary**

CSX Corporation (NASDAQ:CSX) beats The Charles Schwab Corporation (NYSE:SCHW) on a total of 10 of the 14 factors compared between the two stocks. CSX generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, CSX is the cheaper of the two stocks on an earnings, book value and sales basis, CSX is more undervalued relative to its price target. Finally, CSX has better sentiment signals based on short interest.