Global

Choosing Between Yamana Gold Inc. (AUY) and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)

Yamana Gold Inc. (NYSE:AUY) shares are down more than -6.41% this year and recently increased 0.34% or $0.01 to settle at $2.92. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA), on the other hand, is down -6.35% year to date as of 04/16/2018. It currently trades at $7.96 and has returned 1.79% during the past week.

Yamana Gold Inc. (NYSE:AUY) and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) are the two most active stocks in the Gold industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect AUY to grow earnings at a 40.04% annual rate over the next 5 years. Comparatively, BBVA is expected to grow at a 9.20% annual rate. All else equal, AUY’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. EBITDA margin of 47.84% for Banco Bilbao Vizcaya Argentaria, S.A. (BBVA). AUY’s ROI is -1.10% while BBVA has a ROI of 10.80%. The interpretation is that BBVA’s business generates a higher return on investment than AUY’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. AUY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, BBVA’s free cash flow per share was -. On a percent-of-sales basis, AUY’s free cash flow was -5.26% while BBVA converted 0% of its revenues into cash flow. This means that, for a given level of sales, BBVA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

AUY’s debt-to-equity ratio is 0.00 versus a D/E of 1.38 for BBVA. BBVA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AUY trades at a forward P/E of 15.87, a P/B of 0.64, and a P/S of 1.54, compared to a forward P/E of 6.96, a P/B of 0.91, and a P/S of 1.46 for BBVA. AUY 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. AUY is currently priced at a -24.35% to its one-year price target of 3.86. Comparatively, BBVA is 5.01% relative to its price target of 7.58. This suggests that AUY is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. AUY has a beta of 0.92 and BBVA’s beta is 1.14. AUY’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. AUY has a short ratio of 1.05 compared to a short interest of 0.22 for BBVA. This implies that the market is currently less bearish on the outlook for BBVA.

Summary




Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) beats Yamana Gold Inc. (NYSE:AUY) on a total of 7 of the 14 factors compared between the two stocks. BBVA is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, BBVA is the cheaper of the two stocks on an earnings and sales basis, Finally, BBVA has better sentiment signals based on short interest.

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