The Bank of New York Mellon Corporation (NYSE:BK) shares are up more than 3.90% this year and recently decreased -0.85% or -$0.48 to settle at $55.96. Activision Blizzard, Inc. (NASDAQ:ATVI), on the other hand, is up 19.91% year to date as of 03/13/2018. It currently trades at $75.93 and has returned 2.72% during the past week.
The Bank of New York Mellon Corporation (NYSE:BK) and Activision Blizzard, Inc. (NASDAQ:ATVI) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BK to grow earnings at a 9.35% annual rate over the next 5 years. Comparatively, ATVI is expected to grow at a 16.22% annual rate. All else equal, ATVI’s higher growth rate would imply a greater potential for capital appreciation.
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 29.06% for Activision Blizzard, Inc. (ATVI). BK’s ROI is 3.20% while ATVI has a ROI of 7.60%. The interpretation is that ATVI’s business generates a higher return on investment than BK’s.
Cash is king when it comes to investing. On a percent-of-sales basis, BK’s free cash flow was 0% while ATVI converted 15.57% of its revenues into cash flow. This means that, for a given level of sales, ATVI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
BK’s debt-to-equity ratio is 0.74 versus a D/E of 0.00 for ATVI. BK is therefore the more solvent of the two companies, and has lower financial risk.
BK trades at a forward P/E of 12.59, a P/B of 1.52, and a P/S of 13.09, compared to a forward P/E of 25.19, a P/B of 6.07, and a P/S of 8.03 for ATVI. 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. BK is currently priced at a -6.93% to its one-year price target of 60.13. Comparatively, ATVI is 0.01% relative to its price target of 75.92. This suggests that BK 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 BK and 1.90 for ATVI, which implies that analysts are more bullish on the outlook for BK.
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. BK has a beta of 1.16 and ATVI’s beta is 1.11. ATVI’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. BK has a short ratio of 3.63 compared to a short interest of 1.32 for ATVI. This implies that the market is currently less bearish on the outlook for ATVI.
Activision Blizzard, Inc. (NASDAQ:ATVI) beats The Bank of New York Mellon Corporation (NYSE:BK) on a total of 10 of the 14 factors compared between the two stocks. ATVI is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, ATVI has better sentiment signals based on short interest.