American Tower Corporation (REIT) (NYSE:AMT) shares are down more than -1.07% this year and recently increased 1.07% or $1.5 to settle at $141.14. Six Flags Entertainment Corporation (NYSE:SIX), on the other hand, is up 8.20% year to date as of 06/12/2018. It currently trades at $72.03 and has returned 6.81% during the past week.
American Tower Corporation (REIT) (NYSE:AMT) and Six Flags Entertainment Corporation (NYSE:SIX) 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
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect AMT to grow earnings at a 18.35% annual rate over the next 5 years. Comparatively, SIX is expected to grow at a 6.00% annual rate. All else equal, AMT’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 40.6% for Six Flags Entertainment Corporation (SIX). AMT’s ROI is 7.10% while SIX has a ROI of 21.90%. The interpretation is that SIX’s business generates a higher return on investment than AMT’s.Cash Flow
Cash is king when it comes to investing. AMT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.62. Comparatively, SIX’s free cash flow per share was -1.55. On a percent-of-sales basis, AMT’s free cash flow was 4.11% while SIX converted -9.53% of its revenues into cash flow. This means that, for a given level of sales, AMT is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AMT has a current ratio of 0.60 compared to 0.40 for SIX. This means that AMT can more easily cover its most immediate liabilities over the next twelve months.Valuation
AMT trades at a forward P/E of 38.02, a P/B of 9.69, and a P/S of 9.21, compared to a forward P/E of 22.88, and a P/S of 4.28 for SIX. AMT is the expensive of the two stocks on an earnings, book value and sales basis. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AMT is currently priced at a -10.85% to its one-year price target of 158.32. Comparatively, SIX is -2.13% relative to its price target of 73.60. This suggests that AMT is the better investment over the next year.
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. AMT has a beta of 0.78 and SIX’s beta is 1.11. AMT’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. AMT has a short ratio of 2.55 compared to a short interest of 8.97 for SIX. This implies that the market is currently less bearish on the outlook for AMT.Summary
American Tower Corporation (REIT) (NYSE:AMT) beats Six Flags Entertainment Corporation (NYSE:SIX) on a total of 8 of the 14 factors compared between the two stocks. AMT is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. AMT is more undervalued relative to its price target. Finally, AMT has better sentiment signals based on short interest.