CubeSmart (NYSE:CUBE) shares are up more than 8.03% this year and recently decreased -0.38% or -$0.11 to settle at $28.92. Extra Space Storage Inc. (NYSE:EXR), on the other hand, is up 13.22% year to date as of 01/01/2018. It currently trades at $87.45 and has returned 2.68% during the past week.
CubeSmart (NYSE:CUBE) and Extra Space Storage Inc. (NYSE:EXR) are the two most active stocks in the REIT – Industrial industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CUBE to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, EXR is expected to grow at a 6.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar potential for capital appreciation..
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 59.8% for Extra Space Storage Inc. (EXR). CUBE’s ROI is 4.40% while EXR has a ROI of 6.60%. The interpretation is that EXR’s business generates a higher return on investment than CUBE’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CUBE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, EXR’s free cash flow per share was +0.46. On a percent-of-sales basis, CUBE’s free cash flow was 0% while EXR converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, EXR is able to generate more free cash flow for investors.
CUBE’s debt-to-equity ratio is 1.00 versus a D/E of 1.95 for EXR. EXR is therefore the more solvent of the two companies, and has lower financial risk.
CUBE trades at a forward P/E of 36.93, a P/B of 3.22, and a P/S of 9.58, compared to a forward P/E of 30.43, a P/B of 4.96, and a P/S of 10.20 for EXR. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CUBE is currently priced at a -1.4% to its one-year price target of 29.33. Comparatively, EXR is -0.55% relative to its price target of 87.93. This suggests that CUBE 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 2.70 for CUBE and 2.60 for EXR, which implies that analysts are more bullish on the outlook for CUBE.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CUBE has a beta of 0.25 and EXR’s beta is 0.43. CUBE’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CUBE has a short ratio of 6.71 compared to a short interest of 13.13 for EXR. This implies that the market is currently less bearish on the outlook for CUBE.
CubeSmart (NYSE:CUBE) beats Extra Space Storage Inc. (NYSE:EXR) on a total of 7 of the 14 factors compared between the two stocks. CUBE higher liquidity and has lower financial risk. In terms of valuation, CUBE is the cheaper of the two stocks on book value and sales basis, CUBE is more undervalued relative to its price target. Finally, CUBE has better sentiment signals based on short interest.