First Bancorp (NYSE:FBP) shares are down more than -24.36% this year and recently increased 0.20% or $0.01 to settle at $5.01. Popular, Inc. (NASDAQ:BPOP), on the other hand, is down -19.90% year to date as of 12/05/2017. It currently trades at $35.30 and has returned -3.20% during the past week.
First Bancorp (NYSE:FBP) and Popular, Inc. (NASDAQ:BPOP) are the two most active stocks in the Foreign Regional Banks industry based on today’s 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.
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 FBP to grow earnings at a 7.60% annual rate over the next 5 years. Comparatively, BPOP is expected to grow at a 5.00% annual rate. All else equal, FBP’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., compared to an EBITDA margin of 31.38% for Popular, Inc. (BPOP). FBP’s ROI is 18.30% while BPOP has a ROI of 19.20%. The interpretation is that BPOP’s business generates a higher return on investment than FBP’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FBP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.23. Comparatively, BPOP’s free cash flow per share was +1.11. On a percent-of-sales basis, FBP’s free cash flow was 0.01% while BPOP converted 5.86% of its revenues into cash flow. This means that, for a given level of sales, BPOP is able to generate more free cash flow for investors.
FBP’s debt-to-equity ratio is 0.11 versus a D/E of 0.18 for BPOP. BPOP is therefore the more solvent of the two companies, and has lower financial risk.
FBP trades at a forward P/E of 13.93, a P/B of 0.59, and a P/S of 1.91, compared to a forward P/E of 9.21, a P/B of 0.68, and a P/S of 2.18 for BPOP. 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. FBP is currently priced at a -24.43% to its one-year price target of 6.63. Comparatively, BPOP is -21.26% relative to its price target of 44.83. This suggests that FBP 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 2.20 for FBP and 1.80 for BPOP, which implies that analysts are more bullish on the outlook for FBP.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. FBP has a beta of 1.94 and BPOP’s beta is 1.33. BPOP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. FBP has a short ratio of 1.83 compared to a short interest of 2.91 for BPOP. This implies that the market is currently less bearish on the outlook for FBP.
First Bancorp (NYSE:FBP) beats Popular, Inc. (NASDAQ:BPOP) on a total of 8 of the 14 factors compared between the two stocks. FBP is growing fastly, is more profitable, higher liquidity and has lower financial risk. In terms of valuation, FBP is the cheaper of the two stocks on book value and sales basis, FBP is more undervalued relative to its price target. Finally, FBP has better sentiment signals based on short interest.