Critical Analysis: StepStone Group (NASDAQ:STEP) & XP (NASDAQ:XP)

StepStone Group (NASDAQ:STEP) and XP (NASDAQ:XP) are both mid-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their analyst recommendations, earnings, institutional ownership, valuation, dividends, risk and profitability.

Risk and Volatility

StepStone Group has a beta of 1.34, indicating that its stock price is 34% more volatile than the S&P 500. Comparatively, XP has a beta of 1.17, indicating that its stock price is 17% more volatile than the S&P 500.

Profitability

This table compares StepStone Group and XP’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
StepStone Group	-30.66%	31.44%	5.53%
XP	27.51%	23.08%	1.37%

Valuation & Earnings

This table compares StepStone Group and XP”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
StepStone Group	$1.17 billion	5.43	-$179.56 million	($6.94)	-7.71
XP	$7.97 billion	1.18	$925.91 million	$1.73	10.10

XP has higher revenue and earnings than StepStone Group. StepStone Group is trading at a lower price-to-earnings ratio than XP, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

55.5% of StepStone Group shares are owned by institutional investors. Comparatively, 59.2% of XP shares are owned by institutional investors. 16.5% of StepStone Group shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Dividends

StepStone Group pays an annual dividend of $1.12 per share and has a dividend yield of 2.1%. XP pays an annual dividend of $0.18 per share and has a dividend yield of 1.0%. StepStone Group pays out -16.1% of its earnings in the form of a dividend. XP pays out 10.4% 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. StepStone Group has increased its dividend for 3 consecutive years. StepStone Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of current recommendations for StepStone Group and XP, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
StepStone Group	1	2	7	0	2.60
XP	0	4	4	0	2.50

StepStone Group currently has a consensus price target of $71.75, suggesting a potential upside of 34.01%. XP has a consensus price target of $22.67, suggesting a potential upside of 29.75%. Given StepStone Group’s stronger consensus rating and higher probable upside, analysts clearly believe StepStone Group is more favorable than XP.

Summary

StepStone Group beats XP on 11 of the 17 factors compared between the two stocks.

About StepStone Group

StepStone Group Inc. is a private equity and venture capital firm specializing in direct, fund of funds, secondary direct, and secondary indirect investments. For direct investment, it seeks to invest in private debt, venture debt, incubation, mezzanine, distressed/vulture, seed/startup, early venture, mid venture, late venture, emerging growth, later stage, turnaround, growth capital, industry consolidation, recapitalization, buyout investments in mature and middle market companies. It prefers to invest in natural resources, technology, healthcare, services, materials, manufacturing, consumer durables, apparel, hotels, restaurants and leisure, media, retailing, power, utilities consumer staples, financials, telecommunication services, clean energy/renewables, transport, social, natural capital, infrastructure, corporate, real estate, credit and real asset. The firm invests globally with a focus on United States, North America, Europe, Asia, Latin America, Middle East, Africa, Brazil, Mexico, Argentina, Colombia, New Zealand, China, India, Korea, Japan, Taiwan, and Australia region. The firm invests between 5% and 40% in emerging markets. For fund of fund investment, it seeks to invest in private equity funds, venture capital funds, Special situation funds, Real estate funds, Infrastructure funds, mezzanine funds, and turnaround/distressed funds. It considers investments in both domestic and international funds. It also seeks to make co-investments and follow-on investments and considers partial interests in funds. StepStone Group Inc. was founded in 2007 and is based in New York, New York with additional offices across North America, South America, Europe, Australia and Asia.

About XP

XP Inc. provides financial products and services in Brazil. It offers securities brokerage, private pension plans, commercial, and investment banking products, such as loan operations and transactions in the foreign exchange markets and deposits; product structuring and capital markets services for corporate clients and issuers of fixed income products; advisory services for mass-affluent and institutional clients; and wealth management services for high-net-worth customers and institutional clients. The company also offers XP Educação, an online financial education portal that offers seminars, classes, and learning tools to help teach individuals on topics, such as basics of investing, techniques, and investment strategies, as well as insurance brokerage services. In addition, it operates XP Platform, an open product platform that provides clients to access investment products in the market, including equity and fixed income securities, mutual and hedge funds, structured products, life insurance, pension plans, real-estate investment funds, and others. The company was founded in 2001 and is based in São Paulo, Brazil.