Iron Mountain Incorporated (NYSE:IRM) shares are down more than -8.19% this year and recently decreased -1.03% or -$0.36 to settle at $34.64. South Jersey Industries, Inc. (NYSE:SJI), on the other hand, is down -4.42% year to date as of 06/13/2018. It currently trades at $29.85 and has returned -3.27% during the past week.
Iron Mountain Incorporated (NYSE:IRM) and South Jersey Industries, Inc. (NYSE:SJI) are the two most active stocks in the Business Software & Services 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 IRM to grow earnings at a 32.00% annual rate over the next 5 years. Comparatively, SJI is expected to grow at a 6.00% annual rate. All else equal, IRM’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 17.22% for South Jersey Industries, Inc. (SJI). IRM’s ROI is 5.70% while SJI has a ROI of 0.60%. The interpretation is that IRM’s business generates a higher return on investment than SJI’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. IRM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.67. Comparatively, SJI’s free cash flow per share was +0.46. On a percent-of-sales basis, IRM’s free cash flow was -4.98% while SJI converted 3.16% of its revenues into cash flow. This means that, for a given level of sales, SJI is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. IRM has a current ratio of 1.20 compared to 0.40 for SJI. This means that IRM can more easily cover its most immediate liabilities over the next twelve months. IRM’s debt-to-equity ratio is 3.65 versus a D/E of 1.16 for SJI. IRM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
IRM trades at a forward P/E of 29.06, a P/B of 4.37, and a P/S of 2.51, compared to a forward P/E of 17.40, a P/B of 1.85, and a P/S of 1.95 for SJI. IRM 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. IRM is currently priced at a -11.56% to its one-year price target of 39.17. Comparatively, SJI is -13.05% relative to its price target of 34.33. This suggests that SJI 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. IRM has a beta of 0.74 and SJI’s beta is 0.59. SJI’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. IRM has a short ratio of 13.01 compared to a short interest of 14.35 for SJI. This implies that the market is currently less bearish on the outlook for IRM.Summary
South Jersey Industries, Inc. (NYSE:SJI) beats Iron Mountain Incorporated (NYSE:IRM) on a total of 8 of the 14 factors compared between the two stocks. SJI is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, SJI is the cheaper of the two stocks on an earnings, book value and sales basis, SJI is more undervalued relative to its price target. Finally, GPK has better sentiment signals based on short interest.