Morgan Stanley (NYSE:MS) shares are up more than 22.72% this year and recently increased 0.21% or $0.1 to settle at $48.66. Fiat Chrysler Automobiles N.V. (NYSE:FCAU), on the other hand, is up 22.72% year to date as of 11/07/2019. It currently trades at $16.01 and has returned 4.50% during the past week.
Morgan Stanley (NYSE:MS) and Fiat Chrysler Automobiles N.V. (NYSE:FCAU) are the two most active stocks in the Investment Brokerage – National 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.
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 MS to grow earnings at a 8.61% annual rate over the next 5 years. Comparatively, FCAU is expected to grow at a 20.11% annual rate. All else equal, FCAU’s higher growth rate would imply a greater potential for capital appreciation.
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. Morgan Stanley (MS) has an EBITDA margin of 66.54%. This suggests that MS underlying business is more profitableCash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, MS’s free cash flow was 0% while FCAU converted -1.86% of its revenues into cash flow. This means that, for a given level of sales, MS is able to generate more free cash flow for investors.
MS trades at a forward P/E of 9.46, a P/B of 1.09, and a P/S of 1.50, compared to a forward P/E of 5.21, a P/B of 0.93, for FCAU. MS 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
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. MS is currently priced at a -8% to its one-year price target of 52.89. Comparatively, FCAU is -12.23% relative to its price target of 18.24. This suggests that FCAU is the better investment over the next year.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. MS has a short ratio of 1.37 compared to a short interest of 2.18 for FCAU. This implies that the market is currently less bearish on the outlook for MS.
Fiat Chrysler Automobiles N.V. (NYSE:FCAU) beats Morgan Stanley (NYSE:MS) on a total of 7 of the 14 factors compared between the two stocks. FCAU is more profitable and has lower financial risk. In terms of valuation, FCAU is the cheaper of the two stocks on an earnings, book value and sales basis, FCAU is more undervalued relative to its price target.