Critical Comparison: Invesco Ltd. (IVZ) vs. Hilton Grand Vacations Inc. (HGV)


Invesco Ltd. (NYSE:IVZ) shares are down more than -25.40% this year and recently decreased -2.50% or -£0.7 to settle at £27.26. Hilton Grand Vacations Inc. (NYSE:HGV), on the other hand, is down -7.53% year to date as of 06/13/2018. It currently trades at £38.79 and has returned -3.51% during the past week.

Invesco Ltd. (NYSE:IVZ) and Hilton Grand Vacations Inc. (NYSE:HGV) are the two most active stocks in the Asset Management industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors.

Analysts expect IVZ to grow earnings at a 9.55% annual rate over the next 5 years. Comparatively, HGV is expected to grow at a 28.24% annual rate. All else equal, HGV’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.

Invesco Ltd. (IVZ) has an EBITDA margin of 31.76%. This suggests that IVZ underlying business is more profitable IVZ’s ROI is 5.60% while HGV has a ROI of 14.00%. The interpretation is that HGV’s business generates a higher return on investment than IVZ’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. IVZ’s free cash flow (“FCF”) per share for the trailing twelve months was -0.41. Comparatively, HGV’s free cash flow per share was +0.11.

On a percent-of-sales basis, IVZ’s free cash flow was -3.24% while HGV converted 0.62% of its revenues into cash flow. This means that, for a given level of sales, HGV is able to generate more free cash flow for investors.

Financial Risk

IVZ’s debt-to-equity ratio is 0.74 versus a D/E of 2.56 for HGV. HGV is therefore the more solvent of the two companies, and has lower financial risk.

Valuation IVZ trades at a forward P/E of 8.84, a P/B of 1.26, and a P/S of 2.10, compared to a forward P/E of 12.76, a P/B of 9.55, and a P/S of 2.27 for HGV. IVZ 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 When investing it’s crucial to distinguish between price and value.

As Warren Buffet said, “price is what you pay, value is what you get”. IVZ is currently priced at a -22.42% to its one-year price target of 35.14. Comparatively, HGV is -21.06% relative to its price target of 49.14.

This suggests that IVZ is the better investment over the next year. Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. IVZ has a short ratio of 1.64 compared to a short interest of 1.66 for HGV.

This implies that the market is currently less bearish on the outlook for IVZ.

Summary

Invesco Ltd. (NYSE:IVZ) beats Hilton Grand Vacations Inc. (NYSE:HGV) on a total of 8 of the 14 factors compared between the two stocks. IVZ is more profitable, higher liquidity and has lower financial risk. In terms of valuation, IVZ is the cheaper of the two stocks on an earnings, book value and sales basis, IVZ is more undervalued relative to its price target.

Finally, IVZ has better sentiment signals based on short interest.

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