Valley National Bancorp (VLY) vs. Harley-Davidson, Inc. (HOG): Which is the Better Investment?

Valley National Bancorp (NASDAQ:VLY) shares are up more than 25.79% this year and recently decreased -0.09% or -$0.01 to settle at $11.17. Harley-Davidson, Inc. (NYSE:HOG), on the other hand, is up 5.66% year to date as of 09/12/2019. It currently trades at $36.05 and has returned 10.65% during the past week.

Valley National Bancorp (NASDAQ:VLY) and Harley-Davidson, Inc. (NYSE:HOG) are the two most active stocks in the Regional – Northeast 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VLY to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, HOG is expected to grow at a 8.50% annual rate. All else equal, HOG’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., compared to an EBITDA margin of 10.85% for Harley-Davidson, Inc. (HOG). VLY’s ROI is 21.30% while HOG has a ROI of 6.00%. The interpretation is that VLY’s business generates a higher return on investment than HOG’s.

Cash Flow

Cash is king when it comes to investing. VLY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, HOG’s free cash flow per share was +2.23. On a percent-of-sales basis, VLY’s free cash flow was -6.67% while HOG converted 6.11% of its revenues into cash flow. This means that, for a given level of sales, HOG is able to generate more free cash flow for investors.

Liquidity and Financial Risk

VLY’s debt-to-equity ratio is 0.56 versus a D/E of 3.90 for HOG. HOG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VLY trades at a forward P/E of 11.06, a P/B of 1.12, and a P/S of 2.98, compared to a forward P/E of 10.05, a P/B of 3.00, and a P/S of 1.03 for HOG. VLY is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. VLY is currently priced at a -4.61% to its one-year price target of 11.71. Comparatively, HOG is -5.36% relative to its price target of 38.09. This suggests that HOG is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. VLY has a beta of 1.26 and HOG’s beta is 1.21. HOG’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. VLY has a short ratio of 9.51 compared to a short interest of 9.55 for HOG. This implies that the market is currently less bearish on the outlook for VLY.

Summary

Harley-Davidson, Inc. (NYSE:HOG) beats Valley National Bancorp (NASDAQ:VLY) on a total of 8 of the 14 factors compared between the two stocks. HOG is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, HOG is the cheaper of the two stocks on an earnings and sales basis, HOG is more undervalued relative to its price target.