People’s United Financial, Inc. (NASDAQ:PBCT) shares are up more than 7.22% this year and recently decreased -0.30% or -$0.06 to settle at $20.05. Sabra Health Care REIT, Inc. (NASDAQ:SBRA), on the other hand, is down -4.42% year to date as of 03/13/2018. It currently trades at $17.94 and has returned -0.44% during the past week.
People’s United Financial, Inc. (NASDAQ:PBCT) and Sabra Health Care REIT, Inc. (NASDAQ:SBRA) are the two most active stocks in the market 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PBCT to grow earnings at a 2.00% annual rate over the next 5 years. Comparatively, SBRA is expected to grow at a 6.00% annual rate. All else equal, SBRA’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 90.77% for Sabra Health Care REIT, Inc. (SBRA). PBCT’s ROI is 14.00% while SBRA has a ROI of 1.50%. The interpretation is that PBCT’s business generates a higher return on investment than SBRA’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, PBCT’s free cash flow was 0% while SBRA converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, PBCT is able to generate more free cash flow for investors.
PBCT’s debt-to-equity ratio is 0.20 versus a D/E of 0.99 for SBRA. SBRA is therefore the more solvent of the two companies, and has lower financial risk.
PBCT trades at a forward P/E of 14.54, a P/B of 1.22, and a P/S of 5.23, compared to a forward P/E of 11.99, a P/B of 0.94, and a P/S of 7.88 for SBRA. PBCT is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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. PBCT is currently priced at a -0.3% to its one-year price target of 20.11. Comparatively, SBRA is -12.06% relative to its price target of 20.40. This suggests that SBRA 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 3.20 for PBCT and 2.80 for SBRA, which implies that analysts are more bullish on the outlook for PBCT.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. PBCT has a beta of 0.85 and SBRA’s beta is 0.72. SBRA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. PBCT has a short ratio of 6.38 compared to a short interest of 5.87 for SBRA. This implies that the market is currently less bearish on the outlook for SBRA.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) beats People’s United Financial, Inc. (NASDAQ:PBCT) on a total of 8 of the 14 factors compared between the two stocks. SBRA generates a higher return on investment and is more profitable. In terms of valuation, SBRA is the cheaper of the two stocks on an earnings and book value, SBRA is more undervalued relative to its price target. Finally, SBRA has better sentiment signals based on short interest.