American International Group, Inc. (NYSE:AIG) shares are up more than 42.40% this year and recently increased 1.89% or $1.04 to settle at $56.12. Ascena Retail Group, Inc. (NASDAQ:ASNA), on the other hand, is down -88.81% year to date as of 08/13/2019. It currently trades at $0.28 and has returned -15.95% during the past week.
American International Group, Inc. (NYSE:AIG) and Ascena Retail Group, Inc. (NASDAQ:ASNA) are the two most active stocks in the Property & Casualty Insurance 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.
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 AIG to grow earnings at a 66.58% annual rate over the next 5 years. Comparatively, ASNA is expected to grow at a 22.00% annual rate. All else equal, AIG’s higher growth rate would imply a greater potential for capital appreciation.
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 0.73% for Ascena Retail Group, Inc. (ASNA). AIG’s ROI is 1.60% while ASNA has a ROI of 1.10%. The interpretation is that AIG’s business generates a higher return on investment than ASNA’s.Cash Flow
Cash is king when it comes to investing. AIG’s free cash flow (“FCF”) per share for the trailing twelve months was -4.89. Comparatively, ASNA’s free cash flow per share was -0.55. On a percent-of-sales basis, AIG’s free cash flow was -8.97% while ASNA converted -1.65% of its revenues into cash flow. This means that, for a given level of sales, ASNA is able to generate more free cash flow for investors.
AIG’s debt-to-equity ratio is 0.57 versus a D/E of 0.00 for ASNA. AIG is therefore the more solvent of the two companies, and has lower financial risk.
AIG trades at a forward P/E of 10.83, a P/B of 0.77, and a P/S of 1.02, compared to a P/B of 0.11, and a P/S of 0.01 for ASNA. AIG is the expensive 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
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”. AIG is currently priced at a -3.56% to its one-year price target of 58.19. Comparatively, ASNA is -72% relative to its price target of 1.00. This suggests that ASNA 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. AIG has a beta of 1.17 and ASNA’s beta is 0.97. ASNA’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. AIG has a short ratio of 3.79 compared to a short interest of 13.42 for ASNA. This implies that the market is currently less bearish on the outlook for AIG.
Ascena Retail Group, Inc. (NASDAQ:ASNA) beats American International Group, Inc. (NYSE:AIG) on a total of 9 of the 14 factors compared between the two stocks. ASNA is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, ASNA is the cheaper of the two stocks on an earnings, book value and sales basis, ASNA is more undervalued relative to its price target.