Gamco Investors (NYSE: GBL) and Legg Mason (NYSE:LM) are both finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, profitability, valuation, dividends, earnings, institutional ownership and analyst recommendations.

Dividends

Gamco Investors pays an annual dividend of $0.08 per share and has a dividend yield of 0.3%. Legg Mason pays an annual dividend of $1.12 per share and has a dividend yield of 2.9%. Gamco Investors pays out 2.2% of its earnings in the form of a dividend. Legg Mason pays out 46.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Gamco Investors has increased its dividend for 7 consecutive years and Legg Mason has increased its dividend for 5 consecutive years.

Earnings & Valuation

This table compares Gamco Investors and Legg Mason’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Gamco Investors $361.19 million 2.41 $181.57 million $3.68 8.18
Legg Mason $2.98 billion 1.20 $572.31 million $2.41 15.86

Legg Mason has higher revenue and earnings than Gamco Investors. Gamco Investors is trading at a lower price-to-earnings ratio than Legg Mason, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings for Gamco Investors and Legg Mason, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gamco Investors 0 0 0 0 N/A
Legg Mason 3 2 5 0 2.20

Legg Mason has a consensus target price of $42.89, suggesting a potential upside of 12.22%. Given Legg Mason’s higher possible upside, analysts plainly believe Legg Mason is more favorable than Gamco Investors.

Profitability

This table compares Gamco Investors and Legg Mason’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gamco Investors 30.81% -54.62% 53.85%
Legg Mason 8.21% 6.84% 3.35%

Risk & Volatility

Gamco Investors has a beta of 1.05, suggesting that its share price is 5% more volatile than the S&P 500. Comparatively, Legg Mason has a beta of 2.22, suggesting that its share price is 122% more volatile than the S&P 500.

Insider & Institutional Ownership

25.4% of Gamco Investors shares are held by institutional investors. Comparatively, 82.3% of Legg Mason shares are held by institutional investors. 79.0% of Gamco Investors shares are held by insiders. Comparatively, 12.7% of Legg Mason shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Summary

Legg Mason beats Gamco Investors on 9 of the 16 factors compared between the two stocks.

About Gamco Investors

GAMCO Investors, Inc. is a holding company. The Company is a provider of investment advisory services to open and closed-end funds, institutional and private wealth management investors principally in the United States. The Company operates through the investment advisory and asset management business segment. It manages assets on a discretionary basis and invests in securities through various investment styles. Its assets under management are organized into three groups: Institutional and Private Wealth Management; Open and Closed-End Funds, and the GAMCO International SICAV (SICAV). The Company provides advisory services to a range of investors, including corporate retirement plans, foundations, endowments and private wealth clients, and also serves as sub-advisor to third-party investment funds, including registered investment companies. As of December 31, 2016, it had provided advisory services to 21 open-end funds, 15 closed-end funds and one exchange traded managed fund.

About Legg Mason

Legg Mason, Inc. is a holding company. The Company and its subsidiaries are principally engaged in providing asset management and related financial services to individuals, institutions, corporations and municipalities. The Company operates through Global Asset Management segment. Global Asset Management provides investment advisory services to institutional and individual clients and to the Company-sponsored investment funds. The Company, through its subsidiaries, provides investment management and related services to institutional and individual clients, Company-sponsored investment funds and retail separately managed account programs. It offers its products and services directly and through various financial intermediaries. It has operations principally in the United States and the United Kingdom and also has offices in Australia, Bahamas, Brazil, Canada, Chile, China, Dubai, France, Germany, Italy, Japan, Luxembourg, Poland, Singapore, Spain, Switzerland and Taiwan.

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