Dissecting the Numbers for Cadence Bancorporation (CADE) and Fossil Group, Inc. (FOSL)

Cadence Bancorporation (NYSE:CADE) shares are up more than 5.78% this year and recently increased 0.68% or $0.12 to settle at $17.75. Fossil Group, Inc. (NASDAQ:FOSL), on the other hand, is down -14.88% year to date as of 09/12/2019. It currently trades at $13.39 and has returned -1.33% during the past week.

Cadence Bancorporation (NYSE:CADE) and Fossil Group, Inc. (NASDAQ:FOSL) are the two most active stocks in the Regional – Southeast 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, FOSL is expected to grow at a 14.90% annual rate. All else equal, FOSL’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 7.16% for Fossil Group, Inc. (FOSL). CADE’s ROI is 18.80% while FOSL has a ROI of 4.20%. The interpretation is that CADE’s business generates a higher return on investment than FOSL’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. CADE’s free cash flow (“FCF”) per share for the trailing twelve months was +1.49. Comparatively, FOSL’s free cash flow per share was -0.75. On a percent-of-sales basis, CADE’s free cash flow was 0.03% while FOSL converted -1.49% of its revenues into cash flow. This means that, for a given level of sales, CADE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

CADE’s debt-to-equity ratio is 0.11 versus a D/E of 0.42 for FOSL. FOSL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CADE trades at a forward P/E of 8.57, a P/B of 0.94, and a P/S of 3.22, compared to a forward P/E of 20.51, a P/B of 1.25, and a P/S of 0.28 for FOSL. 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. CADE is currently priced at a -4.83% to its one-year price target of 18.65. Comparatively, FOSL is 3% relative to its price target of 13.00. This suggests that CADE 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. CADE has a short ratio of 1.97 compared to a short interest of 11.99 for FOSL. This implies that the market is currently less bearish on the outlook for CADE.

Summary

Cadence Bancorporation (NYSE:CADE) beats Fossil Group, Inc. (NASDAQ:FOSL) on a total of 11 of the 14 factors compared between the two stocks. CADE is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CADE is the cheaper of the two stocks on an earnings and book value, CADE is more undervalued relative to its price target. Finally, CADE has better sentiment signals based on short interest.