Global

Comparing AngloGold Ashanti Limited (AU) and Santander Consumer USA Holdings Inc. (SC)

AngloGold Ashanti Limited (NYSE:AU) shares are down more than -15.90% this year and recently increased 0.47% or $0.04 to settle at $8.57. Santander Consumer USA Holdings Inc. (NYSE:SC), on the other hand, is up 11.60% year to date as of 08/09/2018. It currently trades at $20.78 and has returned 4.06% during the past week.

AngloGold Ashanti Limited (NYSE:AU) and Santander Consumer USA Holdings Inc. (NYSE:SC) 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect AU to grow earnings at a 25.90% annual rate over the next 5 years. Comparatively, SC is expected to grow at a 14.00% annual rate. All else equal, AU’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 45.36% for Santander Consumer USA Holdings Inc. (SC). AU’s ROI is -0.60% while SC has a ROI of 1.40%. The interpretation is that SC’s business generates a higher return on investment than AU’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. AU’s free cash flow (“FCF”) per share for the trailing twelve months was +8.35. Comparatively, SC’s free cash flow per share was -3.01. On a percent-of-sales basis, AU’s free cash flow was 78.48% while SC converted -15.48% of its revenues into cash flow. This means that, for a given level of sales, AU is able to generate more free cash flow for investors.

Liquidity and Financial Risk

AU’s debt-to-equity ratio is 0.85 versus a D/E of 4.53 for SC. SC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AU trades at a forward P/E of 9.71, a P/B of 1.31, and a P/S of 0.81, compared to a forward P/E of 7.73, a P/B of 1.07, and a P/S of 1.10 for SC. AU is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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”. AU is currently priced at a -45.24% to its one-year price target of 15.65. Comparatively, SC is -8.86% relative to its price target of 22.80. This suggests that AU is the better investment over the next year.

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. AU has a beta of -0.90 and SC’s beta is 1.04. AU’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. AU has a short ratio of 2.68 compared to a short interest of 2.01 for SC. This implies that the market is currently less bearish on the outlook for SC.

Summary




AngloGold Ashanti Limited (NYSE:AU) beats Santander Consumer USA Holdings Inc. (NYSE:SC) on a total of 9 of the 14 factors compared between the two stocks. AU is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. AU is more undervalued relative to its price target. Finally, NI has better sentiment signals based on short interest.

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