Ladder Capital Corp (NYSE:LADR) shares are up more than 5.87% this year and recently increased 0.49% or $0.07 to settle at $14.43. PennyMac Mortgage Investment Trust (NYSE:PMT), on the other hand, is up 4.29% year to date as of 02/12/2018. It currently trades at $16.76 and has returned 6.41% during the past week.
Ladder Capital Corp (NYSE:LADR) and PennyMac Mortgage Investment Trust (NYSE:PMT) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect LADR to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, PMT is expected to grow at a 5.00% 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
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., compared to an EBITDA margin of 55.46% for PennyMac Mortgage Investment Trust (PMT). LADR’s ROI is 2.30% while PMT has a ROI of 1.20%. The interpretation is that LADR’s business generates a higher return on investment than PMT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, LADR’s free cash flow was 0% while PMT converted 0% of its revenues into cash flow. This means that, for a given level of sales, LADR is able to generate more free cash flow for investors.
LADR’s debt-to-equity ratio is 3.73 versus a D/E of 3.08 for PMT. LADR is therefore the more solvent of the two companies, and has lower financial risk.
LADR trades at a forward P/E of 9.54, a P/B of 1.09, and a P/S of 3.66, compared to a forward P/E of 9.66, a P/B of 0.85, and a P/S of 2.48 for PMT. LADR 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. LADR is currently priced at a -8.38% to its one-year price target of 15.75. Comparatively, PMT is 2.51% relative to its price target of 16.35. This suggests that LADR 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 1.80 for LADR and 2.80 for PMT, which implies that analysts are more bullish on the outlook for PMT.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. LADR has a beta of 0.89 and PMT’s beta is 0.46. PMT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. LADR has a short ratio of 0.53 compared to a short interest of 2.74 for PMT. This implies that the market is currently less bearish on the outlook for LADR.
Ladder Capital Corp (NYSE:LADR) beats PennyMac Mortgage Investment Trust (NYSE:PMT) on a total of 7 of the 14 factors compared between the two stocks. LADR is more profitable, generates a higher return on investment and higher liquidity. LADR is more undervalued relative to its price target. Finally, LADR has better sentiment signals based on short interest.