The Procter & Gamble Company (NYSE:PG) shares are down more than -19.50% this year and recently increased 0.58% or $0.43 to settle at $73.96. AmTrust Financial Services, Inc. (NASDAQ:AFSI), on the other hand, is up 33.37% year to date as of 05/17/2018. It currently trades at $13.43 and has returned 0.98% during the past week.
The Procter & Gamble Company (NYSE:PG) and AmTrust Financial Services, Inc. (NASDAQ:AFSI) are the two most active stocks in the Personal Products industry 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PG to grow earnings at a 6.98% annual rate over the next 5 years. Comparatively, AFSI is expected to grow at a 10.00% annual rate. All else equal, AFSI’s higher growth rate would imply a greater potential for capital appreciation.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., compared to an EBITDA margin of 1.61% for AmTrust Financial Services, Inc. (AFSI). PG’s ROI is 12.70% while AFSI has a ROI of -6.40%. The interpretation is that PG’s business generates a higher return on investment than AFSI’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. PG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.24. Comparatively, AFSI’s free cash flow per share was +1.21. On a percent-of-sales basis, PG’s free cash flow was 0.93% while AFSI converted 3.99% of its revenues into cash flow. This means that, for a given level of sales, AFSI is able to generate more free cash flow for investors.Liquidity and Financial Risk
PG’s debt-to-equity ratio is 0.66 versus a D/E of 0.51 for AFSI. PG is therefore the more solvent of the two companies, and has lower financial risk.
PG trades at a forward P/E of 16.55, a P/B of 3.50, and a P/S of 2.81, compared to a forward P/E of 8.39, a P/B of 0.93, and a P/S of 0.44 for AFSI. PG is the expensive 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
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.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PG has a beta of 0.57 and AFSI’s beta is 1.33. PG’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. PG has a short ratio of 3.22 compared to a short interest of 4.16 for AFSI. This implies that the market is currently less bearish on the outlook for PG.Summary
AmTrust Financial Services, Inc. (NASDAQ:AFSI) beats The Procter & Gamble Company (NYSE:PG) on a total of 7 of the 13 factors compared between the two stocks. AFSI is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, AFSI is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, NESR has better sentiment signals based on short interest.