Public Storage (NYSE:PSA) shares are down more than -10.13% this year and recently increased 0.35% or $0.66 to settle at $187.82. First Industrial Realty Trust, Inc. (NYSE:FR), on the other hand, is down -9.09% year to date as of 02/12/2018. It currently trades at $28.61 and has returned -1.68% during the past week.
Public Storage (NYSE:PSA) and First Industrial Realty Trust, Inc. (NYSE:FR) are the two most active stocks in the REIT – Industrial 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect PSA to grow earnings at a 17.00% annual rate over the next 5 years. Comparatively, FR is expected to grow at a 10.00% annual rate. All else equal, PSA’s higher growth rate would imply a greater 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 80.9% for First Industrial Realty Trust, Inc. (FR). PSA’s ROI is 25.30% while FR has a ROI of 4.60%. The interpretation is that PSA’s business generates a higher return on investment than FR’s.
If there’s one thing investors care more about than earnings, it’s cash flow. PSA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.54. Comparatively, FR’s free cash flow per share was -0.04. On a percent-of-sales basis, PSA’s free cash flow was 3.67% while FR converted -0% of its revenues into cash flow. This means that, for a given level of sales, PSA is able to generate more free cash flow for investors.
PSA’s debt-to-equity ratio is 0.29 versus a D/E of 1.01 for FR. FR is therefore the more solvent of the two companies, and has lower financial risk.
PSA trades at a forward P/E of 24.73, a P/B of 6.64, and a P/S of 11.91, compared to a forward P/E of 42.89, a P/B of 2.53, and a P/S of 8.71 for FR. PSA is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. PSA is currently priced at a -9.32% to its one-year price target of 207.13. Comparatively, FR is -14.78% relative to its price target of 33.57. This suggests that FR 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 3.30 for PSA and 2.10 for FR, which implies that analysts are more bullish on the outlook for PSA.
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. PSA has a beta of 0.43 and FR’s beta is 0.96. PSA’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. PSA has a short ratio of 10.90 compared to a short interest of 2.79 for FR. This implies that the market is currently less bearish on the outlook for FR.
Public Storage (NYSE:PSA) beats First Industrial Realty Trust, Inc. (NYSE:FR) on a total of 8 of the 14 factors compared between the two stocks. PSA is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk.