Finance

Archer-Daniels-Midland Company (ADM) and ING Groep N.V. (ING) Go Head-to-head

Archer-Daniels-Midland Company (NYSE:ADM) shares are up more than 25.10% this year and recently decreased -2.55% or -$1.31 to settle at $50.14. ING Groep N.V. (NYSE:ING), on the other hand, is down -31.91% year to date as of 10/10/2018. It currently trades at $12.57 and has returned -3.01% during the past week.

Archer-Daniels-Midland Company (NYSE:ADM) and ING Groep N.V. (NYSE:ING) are the two most active stocks in the Farm Products 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ADM to grow earnings at a -8.80% annual rate over the next 5 years. Comparatively, ING is expected to grow at a 5.00% annual rate. All else equal, ING’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Archer-Daniels-Midland Company (ADM) has an EBITDA margin of 5%. This suggests that ADM underlying business is more profitable ADM’s ROI is 3.10% while ING has a ROI of 6.10%. The interpretation is that ING’s business generates a higher return on investment than ADM’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. ADM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.04. Comparatively, ING’s free cash flow per share was -. On a percent-of-sales basis, ADM’s free cash flow was 0.04% while ING converted 0% of its revenues into cash flow. This means that, for a given level of sales, ADM is able to generate more free cash flow for investors.

Liquidity and Financial Risk

ADM’s debt-to-equity ratio is 0.41 versus a D/E of 2.65 for ING. ING is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ADM trades at a forward P/E of 13.87, a P/B of 1.51, and a P/S of 0.45, compared to a forward P/E of 7.42, a P/B of 0.85, and a P/S of 1.22 for ING. ADM is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. ADM is currently priced at a -6.68% to its one-year price target of 53.73. Comparatively, ING is -34.87% relative to its price target of 19.30. This suggests that ING is the better investment over the next year.

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. ADM has a beta of 0.98 and ING’s beta is 1.25. ADM’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. ADM has a short ratio of 2.75 compared to a short interest of 0.75 for ING. This implies that the market is currently less bearish on the outlook for ING.

Summary




ING Groep N.V. (NYSE:ING) beats Archer-Daniels-Midland Company (NYSE:ADM) on a total of 7 of the 14 factors compared between the two stocks. ING is more profitable and generates a higher return on investment. In terms of valuation, ING is the cheaper of the two stocks on an earnings and book value, ING is more undervalued relative to its price target. Finally, ING has better sentiment signals based on short interest.

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