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Comparing JPMorgan Chase & Co. (JPM) and NVIDIA Corporation (NVDA)

JPMorgan Chase & Co. (NYSE:JPM) shares are up more than 6.15% this year and recently increased 0.39% or $0.44 to settle at $113.52. NVIDIA Corporation (NASDAQ:NVDA), on the other hand, is up 40.23% year to date as of 09/13/2018. It currently trades at $271.34 and has returned -0.51% during the past week.

JPMorgan Chase & Co. (NYSE:JPM) and NVIDIA Corporation (NASDAQ:NVDA) are the two most active stocks in the Money Center Banks 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect JPM to grow earnings at a 9.32% annual rate over the next 5 years. Comparatively, NVDA is expected to grow at a 17.16% annual rate. All else equal, NVDA’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 39.96% for NVIDIA Corporation (NVDA). JPM’s ROI is 6.90% while NVDA has a ROI of 30.90%. The interpretation is that NVDA’s business generates a higher return on investment than JPM’s.

Cash Flow



Cash is king when it comes to investing. JPM’s free cash flow (“FCF”) per share for the trailing twelve months was +11.24. Comparatively, NVDA’s free cash flow per share was +1.11. On a percent-of-sales basis, JPM’s free cash flow was 33.87% while NVDA converted 6.95% of its revenues into cash flow. This means that, for a given level of sales, JPM is able to generate more free cash flow for investors.

Liquidity and Financial Risk

JPM’s debt-to-equity ratio is 1.18 versus a D/E of 0.23 for NVDA. JPM is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

JPM trades at a forward P/E of 11.37, a P/B of 1.68, and a P/S of 5.42, compared to a forward P/E of 34.01, a P/B of 18.73, and a P/S of 13.93 for NVDA. JPM is the cheaper 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. JPM is currently priced at a -7.08% to its one-year price target of 122.17. Comparatively, NVDA is -8.65% relative to its price target of 297.03. This suggests that NVDA 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. JPM has a beta of 1.16 and NVDA’s beta is 1.63. JPM’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. JPM has a short ratio of 1.78 compared to a short interest of 1.21 for NVDA. This implies that the market is currently less bearish on the outlook for NVDA.

Summary




NVIDIA Corporation (NASDAQ:NVDA) beats JPMorgan Chase & Co. (NYSE:JPM) on a total of 7 of the 14 factors compared between the two stocks. NVDA is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, JPM is the cheaper of the two stocks on an earnings, book value and sales basis, NVDA is more undervalued relative to its price target. Finally, NVDA has better sentiment signals based on short interest.

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