SunTrust Banks, Inc. (NYSE:STI) shares are up more than 39.61% this year and recently decreased -0.59% or -$0.42 to settle at $70.42. Weibo Corporation (NASDAQ:WB), on the other hand, is down -25.36% year to date as of 12/02/2019. It currently trades at $43.61 and has returned 4.58% during the past week.
SunTrust Banks, Inc. (NYSE:STI) and Weibo Corporation (NASDAQ:WB) are the two most active stocks in the Money Center Banks 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.
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 STI to grow earnings at a 2.60% annual rate over the next 5 years. Comparatively, WB is expected to grow at a 5.47% annual rate. All else equal, WB’s higher growth rate would imply a greater potential for capital appreciation.
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., compared to an EBITDA margin of 40.32% for Weibo Corporation (WB). STI’s ROI is 13.90% while WB has a ROI of 18.60%. The interpretation is that WB’s business generates a higher return on investment than STI’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. STI’s free cash flow (“FCF”) per share for the trailing twelve months was +1.72. Comparatively, WB’s free cash flow per share was -. On a percent-of-sales basis, STI’s free cash flow was 7.32% while WB converted 0% of its revenues into cash flow. This means that, for a given level of sales, STI is able to generate more free cash flow for investors.
STI’s debt-to-equity ratio is 0.83 versus a D/E of 0.79 for WB. STI is therefore the more solvent of the two companies, and has lower financial risk.
STI trades at a forward P/E of 13.07, a P/B of 1.28, and a P/S of 3.95, compared to a forward P/E of 15.22, a P/B of 4.63, and a P/S of 5.59 for WB. STI 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. STI is currently priced at a -1.11% to its one-year price target of 71.21. Comparatively, WB is -15.81% relative to its price target of 51.80. This suggests that WB is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. STI has a beta of 1.53 and WB’s beta is 2.15. STI’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. STI has a short ratio of 4.18 compared to a short interest of 6.08 for WB. This implies that the market is currently less bearish on the outlook for STI.
SunTrust Banks, Inc. (NYSE:STI) beats Weibo Corporation (NASDAQ:WB) on a total of 8 of the 14 factors compared between the two stocks. STI is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, STI is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, STI has better sentiment signals based on short interest.