Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) and Central Pacific Financial Corp. (NYSE:CPF) are the two most active stocks in the Regional – Pacific 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect PPBI to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, CPF is expected to grow at a 8.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar 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. Pacific Premier Bancorp, Inc. (PPBI) has an EBITDA margin of 47.32%, compared to an EBITDA margin of 45.3% for Central Pacific Financial Corp. (CPF). This suggests that PPBI underlying business is more profitable. PPBI’s ROI is 13.90% while CPF has a ROI of 23.10%. The interpretation is that CPF’s business generates a higher return on investment than PPBI’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PPBI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.73. Comparatively, CPF’s free cash flow per share was +0.23. On a percent-of-sales basis, PPBI’s free cash flow was 0.02% while CPF converted 0% of its revenues into cash flow. This means that, for a given level of sales, PPBI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PPBI’s debt-to-equity ratio is 0.00 versus a D/E of 0.18 for CPF. CPF is therefore the more solvent of the two companies, and has lower financial risk.
PPBI trades at a forward P/E of 15.33, a P/B of 1.50, and a P/S of 7.22, compared to a forward P/E of 16.24, a P/B of 1.78, and a P/S of 5.28 for CPF. 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”. PPBI is currently priced at a -14.59% to its one-year price target of $42.50. Comparatively, CPF is -11.36% relative to its price target of $33.63. This suggests that PPBI 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 1.90 for PPBI and 2.40 for CPF, which implies that analysts are more bullish on the outlook for CPF.
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. PPBI has a beta of 0.73 and CPF’s beta is 1.16. PPBI’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. PPBI has a short ratio of 7.39 compared to a short interest of 2.87 for CPF. This implies that the market is currently less bearish on the outlook for CPF.
Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) beats Central Pacific Financial Corp. (NYSE:CPF) on a total of 9 of the 13 factors compared between the two stocks. PPBI is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, PPBI is the cheaper of the two stocks on an earnings and book value, PPBI is more undervalued relative to its price target. Finally, FIBK has better sentiment signals based on short interest.