Earnings

Critical Comparison: WillScot Corporation (WSC) vs. General Finance Corporation (GFN)

WillScot Corporation (NASDAQ:WSC) shares are down more than -4.33% this year and recently decreased -1.62% or -$0.2 to settle at $12.15. General Finance Corporation (NASDAQ:GFN), on the other hand, is up 5.88% year to date as of 02/06/2018. It currently trades at $7.20 and has returned 2.86% during the past week.

WillScot Corporation (NASDAQ:WSC) and General Finance Corporation (NASDAQ:GFN) are the two most active stocks in the Rental & Leasing Services 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, GFN is expected to grow at a 11.00% annual rate. All else equal, GFN’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 21.13% for General Finance Corporation (GFN).

Cash Flow 




Cash is king when it comes to investing. WSC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, GFN’s free cash flow per share was -0.36.

Liquidity and Financial Risk

WSC’s debt-to-equity ratio is 0.00 versus a D/E of 3.95 for GFN. GFN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

WSC trades at a forward P/E of 90.00, a P/B of 0.37, and a P/S of 2.00, compared to a P/B of 1.74, and a P/S of 0.65 for GFN. WSC is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. WSC is currently priced at a -19% to its one-year price target of 15.00. Comparatively, GFN is -6.74% relative to its price target of 7.72. This suggests that WSC 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 1.50 for WSC and 1.70 for GFN, which implies that analysts are more bullish on the outlook for GFN.

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. WSC has a short ratio of 9.06 compared to a short interest of 3.32 for GFN. This implies that the market is currently less bearish on the outlook for GFN.

Summary

WillScot Corporation (NASDAQ:WSC) beats General Finance Corporation (NASDAQ:GFN) on a total of 7 of the 13 factors compared between the two stocks. WSC has higher cash flow per share, higher liquidity and has lower financial risk. WSC is more undervalued relative to its price target. Finally, MGRC has better sentiment signals based on short interest.

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