Finance

Barclays PLC (BCS) vs. Lennar Corporation (LEN): Comparing the Most Active Stocks

Barclays PLC (NYSE:BCS) shares are down more than -18.17% this year and recently increased 1.02% or $0.09 to settle at $8.92. Lennar Corporation (NYSE:LEN), on the other hand, is down -30.87% year to date as of 10/10/2018. It currently trades at $43.72 and has returned -5.45% during the past week.

Barclays PLC (NYSE:BCS) and Lennar Corporation (NYSE:LEN) are the two most active stocks in the Foreign Money Center 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect BCS to grow earnings at a 25.70% annual rate over the next 5 years. Comparatively, LEN is expected to grow at a 23.97% annual rate. All else equal, BCS’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 EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 9.47% for Lennar Corporation (LEN). BCS’s ROI is 1.90% while LEN has a ROI of 4.90%. The interpretation is that LEN’s business generates a higher return on investment than BCS’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, BCS’s free cash flow was 0% while LEN converted 0% of its revenues into cash flow. This means that, for a given level of sales, BCS is able to generate more free cash flow for investors.

Financial Risk

BCS’s debt-to-equity ratio is 1.61 versus a D/E of 0.83 for LEN. BCS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BCS trades at a forward P/E of 7.62, a P/B of 0.48, and a P/S of 3.24, compared to a forward P/E of 6.52, a P/B of 1.05, and a P/S of 0.91 for LEN. BCS 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

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”. BCS is currently priced at a -21.69% to its one-year price target of 11.39. Comparatively, LEN is -32.12% relative to its price target of 64.41. This suggests that LEN 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. BCS has a beta of 0.75 and LEN’s beta is 1.28. BCS’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. BCS has a short ratio of 4.67 compared to a short interest of 3.70 for LEN. This implies that the market is currently less bearish on the outlook for LEN.

Summary




Lennar Corporation (NYSE:LEN) beats Barclays PLC (NYSE:BCS) on a total of 8 of the 14 factors compared between the two stocks. LEN is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, LEN is the cheaper of the two stocks on an earnings and sales basis, LEN is more undervalued relative to its price target. Finally, LEN has better sentiment signals based on short interest.

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