Dissecting the Numbers for Deutsche Bank Aktiengesellschaft (DB) and IAC/InterActiveCorp (IAC)

Deutsche Bank Aktiengesellschaft (NYSE:DB) shares are down more than -11.78% this year and recently decreased -0.28% or -$0.02 to settle at $7.19. IAC/InterActiveCorp (NASDAQ:IAC), on the other hand, is up 19.07% year to date as of 12/02/2019. It currently trades at $217.94 and has returned -1.67% during the past week.

Deutsche Bank Aktiengesellschaft (NYSE:DB) and IAC/InterActiveCorp (NASDAQ:IAC) are the two most active stocks in the Foreign Regional Banks 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect DB to grow earnings at a 13.47% annual rate over the next 5 years. Comparatively, IAC is expected to grow at a 37.69% annual rate. All else equal, IAC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 20.89% for IAC/InterActiveCorp (IAC). DB’s ROI is 3.90% while IAC has a ROI of 13.20%. The interpretation is that IAC’s business generates a higher return on investment than DB’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, DB’s free cash flow was 0% while IAC converted 6.79% of its revenues into cash flow. This means that, for a given level of sales, IAC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

DB’s debt-to-equity ratio is 3.31 versus a D/E of 1.08 for IAC. DB is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

DB trades at a forward P/E of 26.43, a P/B of 0.22, and a P/S of 0.52, compared to a forward P/E of 41.93, a P/B of 6.35, and a P/S of 3.96 for IAC. DB is the cheaper 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. DB is currently priced at a 29.08% to its one-year price target of 5.57. Comparatively, IAC is -21.51% relative to its price target of 277.68. This suggests that IAC 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. DB has a beta of 1.55 and IAC’s beta is 0.89. IAC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. DB has a short ratio of 13.19 compared to a short interest of 5.67 for IAC. This implies that the market is currently less bearish on the outlook for IAC.

Summary

IAC/InterActiveCorp (NASDAQ:IAC) beats Deutsche Bank Aktiengesellschaft (NYSE:DB) on a total of 10 of the 14 factors compared between the two stocks. IAC , is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, DB is the cheaper of the two stocks on an earnings, book value and sales basis, IAC is more undervalued relative to its price target. Finally, IAC has better sentiment signals based on short interest.