Triumph Bancorp, Inc. (NASDAQ:TBK) and Southwest Bancorp, Inc. (NASDAQ:OKSB) are the two most active stocks in the Regional – Southwest Banks industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect TBK to grow earnings at a 11.00% annual rate over the next 5 years. Comparatively, OKSB is expected to grow at a 10.00% annual rate. All else equal, TBK’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. Triumph Bancorp, Inc. (TBK) has an EBITDA margin of 45.41%, compared to an EBITDA margin of 41.17% for Southwest Bancorp, Inc. (OKSB). This suggests that TBK underlying business is more profitable. TBK’s ROI is 25.70% while OKSB has a ROI of 19.50%. The interpretation is that TBK’s business generates a higher return on investment than OKSB’s.
The value of a stock is simply the present value of its future free cash flows. TBK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.87. Comparatively, OKSB’s free cash flow per share was +0.42. On a percent-of-sales basis, TBK’s free cash flow was 0.01% while OKSB converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, TBK is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. TBK’s debt-to-equity ratio is 0.27 versus a D/E of 0.85 for OKSB. OKSB is therefore the more solvent of the two companies, and has lower financial risk.
TBK trades at a forward P/E of 13.10, a P/B of 1.66, and a P/S of 3.74, compared to a forward P/E of 17.23, a P/B of 1.56, and a P/S of 5.11 for OKSB. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. TBK is currently priced at a -12.22% to its one-year price target of $31.50. Comparatively, OKSB is -10.82% relative to its price target of $28.20. This suggests that TBK is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for TBK and 2.90 for OKSB, which implies that analysts are more bullish on the outlook for OKSB.
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. OKSB’s beta is 0.97.
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. TBK has a short ratio of 1.78 compared to a short interest of 1.77 for OKSB. This implies that the market is currently less bearish on the outlook for OKSB.
Triumph Bancorp, Inc. (NASDAQ:TBK) beats Southwest Bancorp, Inc. (NASDAQ:OKSB) on a total of 9 of the 12 factors compared between the two stocks. TBK is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, TBK is the cheaper of the two stocks on an earnings and sales basis, TBK is more undervalued relative to its price target. Finally, EFSC has better sentiment signals based on short interest.