Lennar Corporation (NYSE:LEN) shares are down more than -19.02% this year and recently decreased -5.67% or -$3.08 to settle at $51.21. Eleven Biotherapeutics, Inc. (NASDAQ:EBIO), on the other hand, is up 226.76% year to date as of 05/15/2018. It currently trades at $2.65 and has returned -1.85% during the past week.
Lennar Corporation (NYSE:LEN) and Eleven Biotherapeutics, Inc. (NASDAQ:EBIO) are the two most active stocks in the Residential Construction 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.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect LEN to grow earnings at a 25.42% annual rate over the next 5 years.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Lennar Corporation (LEN) has an EBITDA margin of 9.47%. This suggests that LEN underlying business is more profitable LEN’s ROI is 4.90% while EBIO has a ROI of -162.50%. The interpretation is that LEN’s business generates a higher return on investment than EBIO’s.Cash Flow
Cash is king when it comes to investing. LEN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.73. Comparatively, EBIO’s free cash flow per share was -. On a percent-of-sales basis, LEN’s free cash flow was -1.88% while EBIO converted 0% of its revenues into cash flow. This means that, for a given level of sales, EBIO is able to generate more free cash flow for investors.Liquidity and Financial Risk
LEN’s debt-to-equity ratio is 0.89 versus a D/E of 0.00 for EBIO. LEN is therefore the more solvent of the two companies, and has lower financial risk.
LEN trades at a forward P/E of 7.69, a P/B of 0.99, and a P/S of 1.21, compared to a P/B of 4.49, and a P/S of 318.73 for EBIO. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. LEN is currently priced at a -33.63% to its one-year price target of 77.16. Comparatively, EBIO is 32.5% relative to its price target of 2.00. This suggests that LEN is the better investment over the next year.
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. LEN has a beta of 1.26 and EBIO’s beta is 2.72. LEN’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. LEN has a short ratio of 2.71 compared to a short interest of 1.25 for EBIO. This implies that the market is currently less bearish on the outlook for EBIO.Summary
Lennar Corporation (NYSE:LEN) beats Eleven Biotherapeutics, Inc. (NASDAQ:EBIO) on a total of 8 of the 14 factors compared between the two stocks. LEN is growing fastly, is more profitable and generates a higher return on investment. In terms of valuation, LEN is the cheaper of the two stocks on book value and sales basis, LEN is more undervalued relative to its price target. Finally, BZUN has better sentiment signals based on short interest.