The PNC Financial Services Group, Inc. (NYSE:PNC) shares are up more than 0.81% this year and recently decreased -4.61% or -$7.03 to settle at $145.46. Xunlei Limited (NASDAQ:XNET), on the other hand, is down -23.13% year to date as of 04/13/2018. It currently trades at $11.83 and has returned 7.45% during the past week.
The PNC Financial Services Group, Inc. (NYSE:PNC) and Xunlei Limited (NASDAQ:XNET) are the two most active stocks in the Banks – Regional – US industry 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.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect PNC to grow earnings at a 12.47% annual rate over the next 5 years. Comparatively, XNET is expected to grow at a 19.00% annual rate. All else equal, XNET’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. The PNC Financial Services Group, Inc. (PNC) has an EBITDA margin of 50.91%. This suggests that PNC underlying business is more profitable PNC’s ROI is 8.60% while XNET has a ROI of -13.50%. The interpretation is that PNC’s business generates a higher return on investment than XNET’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, PNC’s free cash flow was 0% while XNET converted 0% of its revenues into cash flow. This means that, for a given level of sales, PNC is able to generate more free cash flow for investors.Liquidity and Financial Risk
PNC’s debt-to-equity ratio is 0.80 versus a D/E of 0.00 for XNET. PNC is therefore the more solvent of the two companies, and has lower financial risk.
PNC trades at a forward P/E of 12.47, a P/B of 1.45, and a P/S of 6.65, compared to a P/B of 2.05, and a P/S of 3.94 for XNET. PNC 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. PNC is currently priced at a -10.71% to its one-year price target of 162.90. Comparatively, XNET is -1.42% relative to its price target of 12.00. This suggests that PNC is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. PNC has a beta of 0.90 and XNET’s beta is 1.66. PNC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. PNC has a short ratio of 2.28 compared to a short interest of 5.37 for XNET. This implies that the market is currently less bearish on the outlook for PNC.Summary
Xunlei Limited (NASDAQ:XNET) beats The PNC Financial Services Group, Inc. (NYSE:PNC) on a total of 6 of the 14 factors compared between the two stocks. XNET is more profitable, higher liquidity and has lower financial risk. In terms of valuation, XNET is the cheaper of the two stocks on an earnings and sales basis, Finally, MYND has better sentiment signals based on short interest.