Paramount Group, Inc. (NYSE:PGRE) shares are down more than -10.66% this year and recently decreased -0.35% or -$0.05 to settle at $14.16. Kennedy-Wilson Holdings, Inc. (NYSE:KW), on the other hand, is down -4.32% year to date as of 02/12/2018. It currently trades at $16.60 and has returned -3.21% during the past week.
Paramount Group, Inc. (NYSE:PGRE) and Kennedy-Wilson Holdings, Inc. (NYSE:KW) are the two most active stocks in the Property Management 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, KW is expected to grow at a 8.00% annual rate. All else equal, KW’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 42.3% for Kennedy-Wilson Holdings, Inc. (KW). PGRE’s ROI is 1.40% while KW has a ROI of 2.20%. The interpretation is that KW’s business generates a higher return on investment than PGRE’s.
Cash is king when it comes to investing. PGRE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, KW’s free cash flow per share was +0.56. On a percent-of-sales basis, PGRE’s free cash flow was -0% while KW converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, KW is able to generate more free cash flow for investors.
PGRE’s debt-to-equity ratio is 0.85 versus a D/E of 5.55 for KW. KW is therefore the more solvent of the two companies, and has lower financial risk.
PGRE trades at a forward P/E of 90.19, a P/B of 0.81, and a P/S of 4.69, compared to a P/B of 1.83, and a P/S of 3.04 for KW. PGRE 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
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. PGRE is currently priced at a -17.77% to its one-year price target of 17.22. Comparatively, KW is -40.71% relative to its price target of 28.00. This suggests that KW 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 PGRE and 2.00 for KW, which implies that analysts are more bullish on the outlook for PGRE.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. PGRE has a short ratio of 3.34 compared to a short interest of 3.43 for KW. This implies that the market is currently less bearish on the outlook for PGRE.
Kennedy-Wilson Holdings, Inc. (NYSE:KW) beats Paramount Group, Inc. (NYSE:PGRE) on a total of 8 of the 14 factors compared between the two stocks. KW is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, KW is the cheaper of the two stocks on an earnings and sales basis, KW is more undervalued relative to its price target. Finally, NYT has better sentiment signals based on short interest.