Global

Choosing Between Washington Prime Group Inc. (WPG) and Jones Energy, Inc. (JONE)

Washington Prime Group Inc. (NYSE:WPG) shares are up more than 9.41% this year and recently decreased -3.23% or -$0.26 to settle at $7.79. Jones Energy, Inc. (NYSE:JONE), on the other hand, is down -64.20% year to date as of 06/13/2018. It currently trades at $0.39 and has returned -0.35% during the past week.

Washington Prime Group Inc. (NYSE:WPG) and Jones Energy, Inc. (NYSE:JONE) are the two most active stocks in the Property Management 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.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Washington Prime Group Inc. (WPG) has an EBITDA margin of 84.09%. This suggests that WPG underlying business is more profitable WPG’s ROI is 9.40% while JONE has a ROI of -12.10%. The interpretation is that WPG’s business generates a higher return on investment than JONE’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. WPG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, JONE’s free cash flow per share was -0.34. On a percent-of-sales basis, WPG’s free cash flow was -0% while JONE converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, WPG is able to generate more free cash flow for investors.

Liquidity and Financial Risk

WPG’s debt-to-equity ratio is 3.35 versus a D/E of 2.25 for JONE. WPG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

WPG trades at a forward P/E of 86.56, a P/B of 1.67, and a P/S of 1.98, compared to a P/B of 0.08, and a P/S of 0.20 for JONE. WPG 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

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”. WPG is currently priced at a 10.81% to its one-year price target of 7.03. Comparatively, JONE is -73.83% relative to its price target of 1.49. This suggests that JONE is the better investment over the next year.

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. WPG has a beta of 0.71 and JONE’s beta is 2.58. WPG’s shares are therefore the less volatile of the two stocks.

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. WPG has a short ratio of 8.66 compared to a short interest of 19.91 for JONE. This implies that the market is currently less bearish on the outlook for WPG.

Summary

Jones Energy, Inc. (NYSE:JONE) beats Washington Prime Group Inc. (NYSE:WPG) on a total of 7 of the 14 factors compared between the two stocks. JONE is more profitable and has lower financial risk. In terms of valuation, JONE is the cheaper of the two stocks on an earnings, book value and sales basis, JONE is more undervalued relative to its price target. Finally, KSS has better sentiment signals based on short interest.

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