First Bancorp (NASDAQ:FBNC) and Sandy Spring Bancorp, Inc. (NASDAQ:SASR) are the two most active stocks in the Regional – Mid-Atlantic 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FBNC to grow earnings at a 10.80% annual rate over the next 5 years. Comparatively, SASR is expected to grow at a 8.00% annual rate. All else equal, FBNC’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 Return on Investment (ROI) to measure this. FBNC’s ROI is 17.00% while SASR has a ROI of 21.30%. The interpretation is that SASR’s business generates a higher return on investment than FBNC’s.
The value of a stock is simply the present value of its future free cash flows. FBNC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.12. Comparatively, SASR’s free cash flow per share was -0.14. On a percent-of-sales basis, FBNC’s free cash flow was 0% while SASR converted -0% of its revenues into cash flow. This means that, for a given level of sales, FBNC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FBNC’s debt-to-equity ratio is 0.71 versus a D/E of 0.00 for SASR. FBNC is therefore the more solvent of the two companies, and has lower financial risk.
FBNC trades at a forward P/E of 13.60, a P/B of 1.50, and a P/S of 5.33, compared to a forward P/E of 13.49, a P/B of 1.68, and a P/S of 5.12 for SASR. FBNC 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FBNC is currently priced at a -11.83% to its one-year price target of $34.67. Comparatively, SASR is -11.17% relative to its price target of $43.33. This suggests that FBNC 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 2.10 for FBNC and 3.00 for SASR, which implies that analysts are more bullish on the outlook for SASR.
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. FBNC has a beta of 1.16 and SASR’s beta is 1.02. SASR’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. FBNC has a short ratio of 16.34 compared to a short interest of 6.65 for SASR. This implies that the market is currently less bearish on the outlook for SASR.
Sandy Spring Bancorp, Inc. (NASDAQ:SASR) beats First Bancorp (NASDAQ:FBNC) on a total of 6 of the 12 factors compared between the two stocks. SASR is growing fastly and has lower financial risk. In terms of valuation, SASR is the cheaper of the two stocks on an earnings and sales basis, Finally, SASR has better sentiment signals based on short interest.