The Goldman Sachs Group, Inc. (NYSE:GS) shares are down more than -15.65% this year and recently decreased -3.60% or -$8.02 to settle at $214.89. Viacom, Inc. (NASDAQ:VIAB), on the other hand, is up 3.70% year to date as of 10/10/2018. It currently trades at $31.95 and has returned -4.11% during the past week.
The Goldman Sachs Group, Inc. (NYSE:GS) and Viacom, Inc. (NASDAQ:VIAB) are the two most active stocks in the Investment Brokerage – National industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
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 GS to grow earnings at a 31.55% annual rate over the next 5 years. Comparatively, VIAB is expected to grow at a 4.79% annual rate. All else equal, GS’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. The Goldman Sachs Group, Inc. (GS) has an EBITDA margin of 75.26%. This suggests that GS underlying business is more profitable GS’s ROI is 1.50% while VIAB has a ROI of 14.50%. The interpretation is that VIAB’s business generates a higher return on investment than GS’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. GS’s free cash flow (“FCF”) per share for the trailing twelve months was +51.07. Comparatively, VIAB’s free cash flow per share was +1.44. On a percent-of-sales basis, GS’s free cash flow was 60.12% while VIAB converted 4.37% of its revenues into cash flow. This means that, for a given level of sales, GS is able to generate more free cash flow for investors.Liquidity and Financial Risk
GS’s debt-to-equity ratio is 7.23 versus a D/E of 1.44 for VIAB. GS is therefore the more solvent of the two companies, and has lower financial risk.
GS trades at a forward P/E of 8.49, a P/B of 1.10, and a P/S of 1.67, compared to a forward P/E of 7.27, a P/B of 1.84, and a P/S of 1.03 for VIAB. GS 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
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. GS is currently priced at a -22.08% to its one-year price target of 275.78. Comparatively, VIAB is -8.48% relative to its price target of 34.91. This suggests that GS is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. GS has a beta of 1.29 and VIAB’s beta is 1.56. GS’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. GS has a short ratio of 1.72 compared to a short interest of 3.34 for VIAB. This implies that the market is currently less bearish on the outlook for GS.Summary
The Goldman Sachs Group, Inc. (NYSE:GS) beats Viacom, Inc. (NASDAQ:VIAB) on a total of 9 of the 14 factors compared between the two stocks. GS is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. GS is more undervalued relative to its price target. Finally, GS has better sentiment signals based on short interest.