Crown Castle International Corp. (REIT) (NYSE:CCI) shares are down more than -6.59% this year and recently decreased -1.17% or -$1.23 to settle at $103.69. ORBCOMM Inc. (NASDAQ:ORBC), on the other hand, is up 3.54% year to date as of 01/11/2018. It currently trades at $10.54 and has returned -4.09% during the past week.
Crown Castle International Corp. (REIT) (NYSE:CCI) and ORBCOMM Inc. (NASDAQ:ORBC) are the two most active stocks in the Diversified Communication Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CCI to grow earnings at a 16.34% annual rate over the next 5 years. Comparatively, ORBC is expected to grow at a 20.00% annual rate. All else equal, ORBC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 3.65% for ORBCOMM Inc. (ORBC). CCI’s ROI is 4.50% while ORBC has a ROI of -3.50%. The interpretation is that CCI’s business generates a higher return on investment than ORBC’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CCI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.48. Comparatively, ORBC’s free cash flow per share was -0.16. On a percent-of-sales basis, CCI’s free cash flow was -4.97% while ORBC converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, ORBC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CCI has a current ratio of 7.10 compared to 2.80 for ORBC. This means that CCI can more easily cover its most immediate liabilities over the next twelve months. CCI’s debt-to-equity ratio is 1.20 versus a D/E of 0.99 for ORBC. CCI is therefore the more solvent of the two companies, and has lower financial risk.
CCI trades at a forward P/E of 86.19, a P/B of 3.24, and a P/S of 10.07, compared to a P/B of 3.13, and a P/S of 3.50 for ORBC. CCI is the expensive of the two stocks on an earnings, book value and sales basis. 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. CCI is currently priced at a -9.97% to its one-year price target of 115.17. Comparatively, ORBC is -22.33% relative to its price target of 13.57. This suggests that ORBC 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 2.20 for CCI and 1.60 for ORBC, which implies that analysts are more bullish on the outlook for CCI.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CCI has a beta of 0.28 and ORBC’s beta is 0.83. CCI’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.CCI has a short ratio of 3.82 compared to a short interest of 6.70 for ORBC. This implies that the market is currently less bearish on the outlook for CCI.
ORBCOMM Inc. (NASDAQ:ORBC) beats Crown Castle International Corp. (REIT) (NYSE:CCI) on a total of 9 of the 14 factors compared between the two stocks. ORBC is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, ORBC is the cheaper of the two stocks on an earnings, book value and sales basis, ORBC is more undervalued relative to its price target. Finally, ANET has better sentiment signals based on short interest.