Johnson Controls International plc (NYSE:JCI) shares are up more than 2.02% this year and recently increased 0.47% or $0.18 to settle at $38.88. Deutsche Bank Aktiengesellschaft (NYSE:DB), on the other hand, is down -17.03% year to date as of 03/13/2018. It currently trades at $15.79 and has returned -1.68% during the past week.
Johnson Controls International plc (NYSE:JCI) and Deutsche Bank Aktiengesellschaft (NYSE:DB) 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.
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 JCI to grow earnings at a 11.15% annual rate over the next 5 years. Comparatively, DB is expected to grow at a 4.78% annual rate. All else equal, JCI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Johnson Controls International plc (JCI) has an EBITDA margin of 12.53%. This suggests that JCI underlying business is more profitable JCI’s ROI is 5.40% while DB has a ROI of 3.70%. The interpretation is that JCI’s business generates a higher return on investment than DB’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, JCI’s free cash flow was 0% while DB converted 0% of its revenues into cash flow. This means that, for a given level of sales, JCI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
JCI’s debt-to-equity ratio is 0.61 versus a D/E of 2.49 for DB. DB is therefore the more solvent of the two companies, and has lower financial risk.
JCI trades at a forward P/E of 12.80, a P/B of 1.75, and a P/S of 1.18, compared to a forward P/E of 8.75, a P/B of 0.38, and a P/S of 1.31 for DB. JCI is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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 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. JCI is currently priced at a -9.14% to its one-year price target of 42.79. Comparatively, DB is -14.97% relative to its price target of 18.57. This suggests that DB 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 2.70 for JCI and 3.00 for DB, which implies that analysts are more bullish on the outlook for DB.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. JCI has a beta of 0.85 and DB’s beta is 1.37. JCI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. JCI has a short ratio of 4.62 compared to a short interest of 7.78 for DB. This implies that the market is currently less bearish on the outlook for JCI.
Johnson Controls International plc (NYSE:JCI) beats Deutsche Bank Aktiengesellschaft (NYSE:DB) on a total of 9 of the 14 factors compared between the two stocks. JCI is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. Finally, JCI has better sentiment signals based on short interest.