Global

Comparing Deutsche Bank Aktiengesellschaft (DB) and National Oilwell Varco, Inc. (NOV)

Deutsche Bank Aktiengesellschaft (NYSE:DB) shares are down more than -42.62% this year and recently decreased -1.00% or -$0.11 to settle at $10.92. National Oilwell Varco, Inc. (NYSE:NOV), on the other hand, is up 19.02% year to date as of 10/10/2018. It currently trades at $42.87 and has returned -3.90% during the past week.

Deutsche Bank Aktiengesellschaft (NYSE:DB) and National Oilwell Varco, Inc. (NYSE:NOV) are the two most active stocks in the Foreign Regional Banks industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect DB to grow earnings at a 13.47% annual rate over the next 5 years. Comparatively, NOV is expected to grow at a 41.00% annual rate. All else equal, NOV’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. DB’s ROI is 2.60% while NOV has a ROI of -2.20%. The interpretation is that DB’s business generates a higher return on investment than NOV’s.

Cash Flow



Cash is king when it comes to investing. DB’s free cash flow (“FCF”) per share for the trailing twelve months was -1.99. Comparatively, NOV’s free cash flow per share was +0.41. On a percent-of-sales basis, DB’s free cash flow was -9.54% while NOV converted 2.15% of its revenues into cash flow. This means that, for a given level of sales, NOV is able to generate more free cash flow for investors.

Liquidity and Financial Risk

DB’s debt-to-equity ratio is 2.48 versus a D/E of 0.20 for NOV. DB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

DB trades at a forward P/E of 10.38, a P/B of 0.30, and a P/S of 0.78, compared to a forward P/E of 41.82, a P/B of 1.17, and a P/S of 2.16 for NOV. DB is the cheaper of the two stocks on an earnings, book value and sales basis. 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. DB is currently priced at a 5% to its one-year price target of 10.40. Comparatively, NOV is -5.92% relative to its price target of 45.57. This suggests that NOV is the better investment over the next year.

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. DB has a beta of 1.32 and NOV’s beta is 0.92. NOV’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. DB has a short ratio of 16.35 compared to a short interest of 5.52 for NOV. This implies that the market is currently less bearish on the outlook for NOV.

Summary




National Oilwell Varco, Inc. (NYSE:NOV) beats Deutsche Bank Aktiengesellschaft (NYSE:DB) on a total of 9 of the 14 factors compared between the two stocks. NOV generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, DB is the cheaper of the two stocks on an earnings, book value and sales basis, NOV is more undervalued relative to its price target. Finally, NOV has better sentiment signals based on short interest.

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