Aflac Incorporated (NYSE:AFL) shares are up more than 3.38% this year and recently decreased -0.09% or -$0.08 to settle at $90.75. Pretium Resources Inc. (NYSE:PVG), on the other hand, is down -39.61% year to date as of 03/13/2018. It currently trades at $6.89 and has returned -1.99% during the past week.
Aflac Incorporated (NYSE:AFL) and Pretium Resources Inc. (NYSE:PVG) are the two most active stocks in the market 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.
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 AFL to grow earnings at a 13.50% annual rate over the next 5 years.
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. Aflac Incorporated (AFL) has an EBITDA margin of 24.88%. This suggests that AFL underlying business is more profitable
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, AFL’s free cash flow was 0% while PVG converted -0% of its revenues into cash flow. This means that, for a given level of sales, AFL is able to generate more free cash flow for investors.
AFL trades at a forward P/E of 11.27, a P/B of 1.45, and a P/S of 1.60, compared to a forward P/E of 13.78, a P/B of 1.48, and a P/S of 7.03 for PVG. AFL 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. AFL is currently priced at a -0.97% to its one-year price target of 91.64. Comparatively, PVG is -49.56% relative to its price target of 13.66. This suggests that PVG 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 2.90 for AFL and 2.00 for PVG, which implies that analysts are more bullish on the outlook for AFL.
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. AFL has a short ratio of 3.37 compared to a short interest of 6.40 for PVG. This implies that the market is currently less bearish on the outlook for AFL.
Aflac Incorporated (NYSE:AFL) beats Pretium Resources Inc. (NYSE:PVG) on a total of 9 of the 14 factors compared between the two stocks. AFL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, AFL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, AFL has better sentiment signals based on short interest.