Farmers & Merchants Bancorp (NASDAQ: FMAO) and Guaranty Federal Bancshares (NASDAQ:GFED) are both small-cap financials companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, institutional ownership, analyst recommendations, earnings, profitability, valuation and dividends.

Institutional and Insider Ownership

13.6% of Farmers & Merchants Bancorp shares are held by institutional investors. Comparatively, 25.8% of Guaranty Federal Bancshares shares are held by institutional investors. 5.0% of Farmers & Merchants Bancorp shares are held by company insiders. Comparatively, 10.0% of Guaranty Federal Bancshares shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Farmers & Merchants Bancorp and Guaranty Federal Bancshares’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Farmers & Merchants Bancorp 24.46% 9.65% 1.17%
Guaranty Federal Bancshares 18.63% 8.65% 0.85%

Dividends

Farmers & Merchants Bancorp pays an annual dividend of $0.52 per share and has a dividend yield of 1.2%. Guaranty Federal Bancshares pays an annual dividend of $0.40 per share and has a dividend yield of 1.8%. Farmers & Merchants Bancorp pays out 38.5% of its earnings in the form of a dividend. Guaranty Federal Bancshares pays out 28.2% 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. Guaranty Federal Bancshares is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk & Volatility

Farmers & Merchants Bancorp has a beta of 0.23, meaning that its share price is 77% less volatile than the S&P 500. Comparatively, Guaranty Federal Bancshares has a beta of 0.52, meaning that its share price is 48% less volatile than the S&P 500.

Valuation and Earnings

This table compares Farmers & Merchants Bancorp and Guaranty Federal Bancshares’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Farmers & Merchants Bancorp $49.10 million 8.18 $11.66 million $1.35 32.11
Guaranty Federal Bancshares $30.26 million 3.24 $5.59 million $1.42 15.60

Farmers & Merchants Bancorp has higher revenue and earnings than Guaranty Federal Bancshares. Guaranty Federal Bancshares is trading at a lower price-to-earnings ratio than Farmers & Merchants Bancorp, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and target prices for Farmers & Merchants Bancorp and Guaranty Federal Bancshares, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Farmers & Merchants Bancorp 0 1 0 0 2.00
Guaranty Federal Bancshares 0 0 1 0 3.00

Guaranty Federal Bancshares has a consensus target price of $25.00, suggesting a potential upside of 12.87%. Given Guaranty Federal Bancshares’ stronger consensus rating and higher probable upside, analysts plainly believe Guaranty Federal Bancshares is more favorable than Farmers & Merchants Bancorp.

Summary

Guaranty Federal Bancshares beats Farmers & Merchants Bancorp on 9 of the 16 factors compared between the two stocks.

Farmers & Merchants Bancorp Company Profile

Farmers & Merchants Bancorp, Inc. is a bank holding company. The Company’s primary subsidiary, The Farmers & Merchants State Bank (the Bank), is a community bank operating in Northwest Ohio and Northeast Indiana. The Company’s other subsidiary, Farmers & Merchants Risk Management (Captive), is a captive insurance company. The Bank is engaged in general commercial banking business. The Bank’s activities include commercial, agricultural and residential mortgage as well as consumer and credit card lending activities. The Bank’s loan portfolio consists of loans made to customers in the farming industry for such things as farm land, farm equipment, livestock and operating loans for seed, fertilizer and feed. Its other types of lending activities include loans for home improvements and loans for such items as autos, trucks, recreational vehicles and motorcycles. The Bank also provides checking account services, as well as savings and time deposit services, such as certificates of deposits.

Guaranty Federal Bancshares Company Profile

Guaranty Federal Bancshares, Inc. is the savings and loan holding company for Guaranty Federal Savings Bank (the Bank). The Company operates through banking operation segment. The banking segment is engaged in the business of originating mortgage loans secured by one- to four-family residences, multi-family, construction, commercial and consumer loans. The Bank’s primary market areas are Greene and Christian Counties, which are in the southwestern corner of Missouri, and includes the cities of Springfield, Nixa and Ozark, and Missouri. The Bank’s loan portfolio consists of mortgage loans, including one- to four-family loans, multi-family loans, construction loans and commercial real estate loans; commercial business loans, and consumer loans. The Bank invests in mortgage-backed securities, the United States Government and federal agency securities, and other marketable securities. The Company owns Guaranty Statutory Trust I and Guaranty Statutory Trust II.

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