Finance

Choosing Between Spirit Realty Capital, Inc. (SRC) and Klondex Mines Ltd. (KLDX)

Spirit Realty Capital, Inc. (NYSE:SRC) shares are up more than 4.31% this year and recently increased 1.65% or $0.13 to settle at $8.02. Klondex Mines Ltd. (NYSE:KLDX), on the other hand, is down -5.36% year to date as of 06/12/2018. It currently trades at $2.47 and has returned 3.35% during the past week.

Spirit Realty Capital, Inc. (NYSE:SRC) and Klondex Mines Ltd. (NYSE:KLDX) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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 SRC to grow earnings at a 37.47% annual rate over the next 5 years.

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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Spirit Realty Capital, Inc. (SRC) has an EBITDA margin of 79.7%. This suggests that SRC underlying business is more profitable

Cash Flow



The value of a stock is simply the present value of its future free cash flows. SRC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, KLDX’s free cash flow per share was +0.04. On a percent-of-sales basis, SRC’s free cash flow was 0% while KLDX converted 0% of its revenues into cash flow. This means that, for a given level of sales, SRC is able to generate more free cash flow for investors.

Valuation

SRC trades at a forward P/E of 32.73, a P/B of 1.19, and a P/S of 5.13, compared to a forward P/E of 49.40, a P/B of 1.58, and a P/S of 1.71 for KLDX. 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. SRC is currently priced at a -12.92% to its one-year price target of 9.21. Comparatively, KLDX is -43.61% relative to its price target of 4.38. This suggests that KLDX is the better investment over the next year.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SRC has a short ratio of 0.95 compared to a short interest of 3.41 for KLDX. This implies that the market is currently less bearish on the outlook for SRC.

Summary

Spirit Realty Capital, Inc. (NYSE:SRC) beats Klondex Mines Ltd. (NYSE:KLDX) on a total of 7 of the 14 factors compared between the two stocks. SRC is growing fastly, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, SRC is the cheaper of the two stocks on an earnings and book value, Finally, SRC has better sentiment signals based on short interest.

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