Critical Comparison: MetLife, Inc. (MET) vs. GSX Techedu Inc. (GSX)

MetLife, Inc. (NYSE:MET) shares are up more than 14.30% this year and recently increased 2.27% or $1.04 to settle at $46.93. GSX Techedu Inc. (NYSE:GSX), on the other hand, is up 35.88% year to date as of 08/13/2019. It currently trades at $14.24 and has returned 13.02% during the past week.

MetLife, Inc. (NYSE:MET) and GSX Techedu Inc. (NYSE:GSX) are the two most active stocks in the Life 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.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MET to grow earnings at a 6.64% annual rate over the next 5 years.

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. MetLife, Inc. (MET) has an EBITDA margin of 12.5%. This suggests that MET underlying business is more profitable MET’s ROI is 9.10% while GSX has a ROI of -3.40%. The interpretation is that MET’s business generates a higher return on investment than GSX’s.

Cash Flow

Cash is king when it comes to investing. MET’s free cash flow (“FCF”) per share for the trailing twelve months was +2.01. Comparatively, GSX’s free cash flow per share was +0.04. On a percent-of-sales basis, MET’s free cash flow was 2.77% while GSX converted 0.11% of its revenues into cash flow. This means that, for a given level of sales, MET is able to generate more free cash flow for investors.

Valuation

MET trades at a forward P/E of 7.72, a P/B of 0.70, and a P/S of 0.67, compared to a forward P/E of 4.28, and a P/S of 37.80 for GSX. MET 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

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. MET is currently priced at a -12.33% to its one-year price target of 53.53. Comparatively, GSX is -86.54% relative to its price target of 105.80. This suggests that GSX is the better investment over the next year.

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. MET has a short ratio of 2.17 compared to a short interest of 1.15 for GSX. This implies that the market is currently less bearish on the outlook for GSX.

Summary

GSX Techedu Inc. (NYSE:GSX) beats MetLife, Inc. (NYSE:MET) on a total of 8 of the 14 factors compared between the two stocks. GSX is growing fastly and has lower financial risk. In terms of valuation, GSX is the cheaper of the two stocks on an earnings and book value, GSX is more undervalued relative to its price target. Finally, GSX has better sentiment signals based on short interest.