Investors Bancorp, Inc. (NASDAQ:ISBC) and Astoria Financial Corporation (NYSE:AF) are the two most active stocks in the Savings & Loans 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 ISBC to grow earnings at a 12.00% annual rate over the next 5 years. Comparatively, AF is expected to grow at a 5.00% annual rate. All else equal, ISBC’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. Investors Bancorp, Inc. (ISBC) has an EBITDA margin of 70.86%, compared to an EBITDA margin of 65.4% for Astoria Financial Corporation (AF). This suggests that ISBC underlying business is more profitable. ISBC’s ROI is 16.20% while AF has a ROI of 5.70%. The interpretation is that ISBC’s business generates a higher return on investment than AF’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, ISBC’s free cash flow was 0% while AF converted 0% of its revenues into cash flow. This means that, for a given level of sales, ISBC 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. ISBC’s debt-to-equity ratio is 1.55 versus a D/E of 0.12 for AF. ISBC is therefore the more solvent of the two companies, and has lower financial risk.
ISBC trades at a forward P/E of 21.57, a P/B of 1.26, and a P/S of 5.04, compared to a forward P/E of 40.95, a P/B of 1.34, and a P/S of 4.95 for AF. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ISBC is currently priced at a -5.35% to its one-year price target of $14.40. Comparatively, AF is -3.93% relative to its price target of $22.38. This suggests that ISBC 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 2.50 for ISBC and 2.50 for AF, which implies that analysts are equally bullish on their outlook for the two stocks.
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. ISBC has a beta of 0.69 and AF’s beta is 0.57. AF’s shares are therefore the less volatile of the two stocks.
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. ISBC has a short ratio of 3.95 compared to a short interest of 4.05 for AF. This implies that the market is currently less bearish on the outlook for ISBC.
Investors Bancorp, Inc. (NASDAQ:ISBC) beats Astoria Financial Corporation (NYSE:AF) on a total of 7 of the 12 factors compared between the two stocks. ISBC is growing fastly, is more profitable and generates a higher return on investment. In terms of valuation, ISBC is the cheaper of the two stocks on an earnings and book value, ISBC is more undervalued relative to its price target. Finally, ISBC has better sentiment signals based on short interest.