Anworth Mortgage Asset Corporation (NYSE:ANH) and Blackstone Mortgage Trust, Inc. (NYSE:BXMT) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ANH to grow earnings at a -3.85% annual rate over the next 5 years. Comparatively, BXMT is expected to grow at a 0.05% annual rate. All else equal, BXMT’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. Anworth Mortgage Asset Corporation (ANH) has an EBITDA margin of 108.13%, compared to an EBITDA margin of 128.97% for Blackstone Mortgage Trust, Inc. (BXMT). This suggests that BXMT underlying business is more profitable. ANH’s ROI is 0.50% while BXMT has a ROI of 2.80%. The interpretation is that BXMT’s business generates a higher return on investment than ANH’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. ANH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.12. Comparatively, BXMT’s free cash flow per share was -0.06. On a percent-of-sales basis, ANH’s free cash flow was 0.01% while BXMT converted -0% of its revenues into cash flow. This means that, for a given level of sales, ANH is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. ANH’s debt-to-equity ratio is 6.65 versus a D/E of 2.83 for BXMT. ANH is therefore the more solvent of the two companies, and has lower financial risk.
ANH trades at a forward P/E of 12.35, a P/B of 0.99, and a P/S of 4.21, compared to a forward P/E of 12.01, a P/B of 1.19, and a P/S of 6.06 for BXMT. 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. ANH is currently priced at a 2.33% to its one-year price target of $6.00. Comparatively, BXMT is -2.81% relative to its price target of $32.43. This suggests that BXMT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for ANH and 2.30 for BXMT, which implies that analysts are more bullish on the outlook for ANH.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ANH has a beta of 0.32 and BXMT’s beta is 0.77. ANH’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. ANH has a short ratio of 2.83 compared to a short interest of 10.80 for BXMT. This implies that the market is currently less bearish on the outlook for ANH.
Blackstone Mortgage Trust, Inc. (NYSE:BXMT) beats Anworth Mortgage Asset Corporation (NYSE:ANH) on a total of 7 of the 13 factors compared between the two stocks. BXMT has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. BXMT is more undervalued relative to its price target. Finally, IRET has better sentiment signals based on short interest.