Critical Comparison: IAMGOLD Corporation (IAG) vs. SVB Financial Group (SIVB)

IAMGOLD Corporation (NYSE:IAG) shares are down more than -7.61% this year and recently decreased -7.36% or -$0.27 to settle at $3.40. SVB Financial Group (NASDAQ:SIVB), on the other hand, is up 26.08% year to date as of 11/07/2019. It currently trades at $239.45 and has returned 8.11% during the past week.

IAMGOLD Corporation (NYSE:IAG) and SVB Financial Group (NASDAQ:SIVB) are the two most active stocks in the Gold 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

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 IAG to grow earnings at a 16.70% annual rate over the next 5 years. Comparatively, SIVB is expected to grow at a 9.00% annual rate. All else equal, IAG’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. EBITDA margin of 60.08% for SVB Financial Group (SIVB). IAG’s ROI is -0.10% while SIVB has a ROI of 25.00%. The interpretation is that SIVB’s business generates a higher return on investment than IAG’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. IAG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, SIVB’s free cash flow per share was -. On a percent-of-sales basis, IAG’s free cash flow was -4.22% while SIVB converted 0% of its revenues into cash flow. This means that, for a given level of sales, SIVB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

IAG’s debt-to-equity ratio is 0.15 versus a D/E of 0.13 for SIVB. IAG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

IAG trades at a forward P/E of 13.60, a P/B of 0.59, and a P/S of 1.57, compared to a forward P/E of 12.18, a P/B of 2.24, and a P/S of 5.50 for SIVB. 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. IAG is currently priced at a -55.56% to its one-year price target of 7.65. Comparatively, SIVB is -2.35% relative to its price target of 245.21. This suggests that IAG 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. IAG has a beta of -0.01 and SIVB’s beta is 2.17. IAG’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. IAG has a short ratio of 2.98 compared to a short interest of 2.59 for SIVB. This implies that the market is currently less bearish on the outlook for SIVB.

Summary

SVB Financial Group (NASDAQ:SIVB) beats IAMGOLD Corporation (NYSE:IAG) on a total of 7 of the 14 factors compared between the two stocks. SIVB is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, SIVB has better sentiment signals based on short interest.