Global

A Side-by-side Analysis of First BanCorp. (FBP) and Vipshop Holdings Limited (VIPS)

First BanCorp. (NYSE:FBP) shares are up more than 54.31% this year and recently decreased -1.13% or -$0.09 to settle at $7.87. Vipshop Holdings Limited (NYSE:VIPS), on the other hand, is down -15.36% year to date as of 07/19/2018. It currently trades at $9.92 and has returned -3.88% during the past week.

First BanCorp. (NYSE:FBP) and Vipshop Holdings Limited (NYSE:VIPS) are the two most active stocks in the Foreign Regional Banks 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 FBP to grow earnings at a 40.90% annual rate over the next 5 years. Comparatively, VIPS is expected to grow at a 1.25% annual rate. All else equal, FBP’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. First BanCorp. (FBP) has an EBITDA margin of 47.5%. This suggests that FBP underlying business is more profitable FBP’s ROI is 17.30% while VIPS has a ROI of 7.00%. The interpretation is that FBP’s business generates a higher return on investment than VIPS’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. FBP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.37. Comparatively, VIPS’s free cash flow per share was -. On a percent-of-sales basis, FBP’s free cash flow was 0.01% while VIPS converted 0% of its revenues into cash flow. This means that, for a given level of sales, FBP is able to generate more free cash flow for investors.

Liquidity and Financial Risk

FBP’s debt-to-equity ratio is 0.10 versus a D/E of 0.34 for VIPS. VIPS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FBP trades at a forward P/E of 13.55, a P/B of 0.92, and a P/S of 2.95, compared to a forward P/E of 10.74, a P/B of 2.87, and a P/S of 0.57 for VIPS. FBP 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. FBP is currently priced at a -9.23% to its one-year price target of 8.67. Comparatively, VIPS is -41.13% relative to its price target of 16.85. This suggests that VIPS is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. FBP has a beta of 1.89 and VIPS’s beta is 1.94. FBP’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. FBP has a short ratio of 2.69 compared to a short interest of 2.09 for VIPS. This implies that the market is currently less bearish on the outlook for VIPS.

Summary




First BanCorp. (NYSE:FBP) beats Vipshop Holdings Limited (NYSE:VIPS) on a total of 9 of the 14 factors compared between the two stocks. FBP is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, ATUS has better sentiment signals based on short interest.

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