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Comparing RAIT Financial Trust (RAS) and Overstock.com, Inc. (OSTK)

RAIT Financial Trust (NYSE:RAS) shares are down more than -50.77% this year and recently decreased -4.60% or -$0.01 to settle at $0.18. Overstock.com, Inc. (NASDAQ:OSTK), on the other hand, is down -41.47% year to date as of 04/13/2018. It currently trades at $37.40 and has returned 4.32% during the past week.

RAIT Financial Trust (NYSE:RAS) and Overstock.com, Inc. (NASDAQ:OSTK) are the two most active stocks in the REIT – Diversified 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. Analysts expect RAS to grow earnings at a -8.00% annual rate over the next 5 years. Comparatively, OSTK is expected to grow at a 4.00% annual rate. All else equal, OSTK’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 Return on Investment (ROI) as measures of profitability and return. RAS’s ROI is -11.90% while OSTK has a ROI of -42.50%. The interpretation is that RAS’s business generates a higher return on investment than OSTK’s.

Cash Flow



Cash is king when it comes to investing. On a percent-of-sales basis, RAS’s free cash flow was 0% while OSTK converted 1.66% of its revenues into cash flow. This means that, for a given level of sales, OSTK is able to generate more free cash flow for investors.

Liquidity and Financial Risk

RAS’s debt-to-equity ratio is 7.89 versus a D/E of 0.23 for OSTK. RAS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RAS trades at a P/B of 0.10, and a P/S of 0.13, compared to a P/B of 5.34, and a P/S of 0.56 for OSTK. 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

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for RAS and 1.00 for OSTK, which implies that analysts are more bullish on the outlook for RAS.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. RAS has a beta of 2.57 and OSTK’s beta is 1.75. OSTK’s shares are therefore the less volatile of the two stocks.

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. RAS has a short ratio of 1.53 compared to a short interest of 2.35 for OSTK. This implies that the market is currently less bearish on the outlook for RAS.

Summary




Overstock.com, Inc. (NASDAQ:OSTK) beats RAIT Financial Trust (NYSE:RAS) on a total of 7 of the 13 factors compared between the two stocks. OSTK 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. Finally, MYND has better sentiment signals based on short interest.

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