Global

A Side-by-side Analysis of Cadence Bancorporation (CADE) and Albemarle Corporation (ALB)

Cadence Bancorporation (NYSE:CADE) shares are down more than -27.77% this year and recently decreased -0.51% or -$0.1 to settle at $19.59. Albemarle Corporation (NYSE:ALB), on the other hand, is down -28.70% year to date as of 12/06/2018. It currently trades at $91.19 and has returned -5.62% during the past week.

Cadence Bancorporation (NYSE:CADE) and Albemarle Corporation (NYSE:ALB) are the two most active stocks based on recent 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

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, ALB is expected to grow at a 12.70% annual rate. All else equal, ALB’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 31.43% for Albemarle Corporation (ALB). CADE’s ROI is 15.20% while ALB has a ROI of 10.40%. The interpretation is that CADE’s business generates a higher return on investment than ALB’s.

Cash Flow



Cash is king when it comes to investing. CADE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.31. Comparatively, ALB’s free cash flow per share was -0.68. On a percent-of-sales basis, CADE’s free cash flow was 0.01% while ALB converted -2.35% of its revenues into cash flow. This means that, for a given level of sales, CADE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

CADE’s debt-to-equity ratio is 0.23 versus a D/E of 0.48 for ALB. ALB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CADE trades at a forward P/E of 8.63, a P/B of 1.16, and a P/S of 3.43, compared to a forward P/E of 14.84, a P/B of 2.77, and a P/S of 2.93 for ALB. 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”. CADE is currently priced at a -32.8% to its one-year price target of 29.15. Comparatively, ALB is -26.37% relative to its price target of 123.85. This suggests that CADE is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. CADE has a short ratio of 5.63 compared to a short interest of 9.03 for ALB. This implies that the market is currently less bearish on the outlook for CADE.

Summary

Cadence Bancorporation (NYSE:CADE) beats Albemarle Corporation (NYSE:ALB) on a total of 10 of the 14 factors compared between the two stocks. CADE 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. In terms of valuation, CADE is the cheaper of the two stocks on an earnings and book value, CADE is more undervalued relative to its price target. Finally, CADE has better sentiment signals based on short interest.

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