Pennsylvania Real Estate Investment Trust (NYSE:PEI) shares are down more than -6.06% this year and recently decreased -6.06% or -$0.72 to settle at $11.17. MagneGas Corporation (NASDAQ:MNGA), on the other hand, is down -91.66% year to date as of 06/13/2018. It currently trades at $0.40 and has returned -12.93% during the past week.
Pennsylvania Real Estate Investment Trust (NYSE:PEI) and MagneGas Corporation (NASDAQ:MNGA) are the two most active stocks in the REIT – Retail 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
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 PEI to grow earnings at a 1.00% annual rate over the next 5 years.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. Pennsylvania Real Estate Investment Trust (PEI) has an EBITDA margin of 36.09%. This suggests that PEI underlying business is more profitable PEI’s ROI is 0.20% while MNGA has a ROI of -143.90%. The interpretation is that PEI’s business generates a higher return on investment than MNGA’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. PEI’s free cash flow (“FCF”) per share for the trailing twelve months was +1.66. Comparatively, MNGA’s free cash flow per share was -0.47. On a percent-of-sales basis, PEI’s free cash flow was 0.03% while MNGA converted -0.2% of its revenues into cash flow. This means that, for a given level of sales, PEI is able to generate more free cash flow for investors.Liquidity and Financial Risk
PEI’s debt-to-equity ratio is 2.66 versus a D/E of 0.06 for MNGA. PEI is therefore the more solvent of the two companies, and has lower financial risk.
PEI trades at a P/B of 1.28, and a P/S of 2.14, compared to a P/B of 0.18, and a P/S of 1.55 for MNGA. 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. PEI is currently priced at a 8.24% to its one-year price target of 10.32. Comparatively, MNGA is -93.33% relative to its price target of 6.00. This suggests that MNGA 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. PEI has a beta of 1.26 and MNGA’s beta is -0.38. MNGA’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. PEI has a short ratio of 14.98 compared to a short interest of 0.34 for MNGA. This implies that the market is currently less bearish on the outlook for MNGA.Summary
MagneGas Corporation (NASDAQ:MNGA) beats Pennsylvania Real Estate Investment Trust (NYSE:PEI) on a total of 8 of the 14 factors compared between the two stocks. MNGA is growing fastly and has lower financial risk. In terms of valuation, MNGA is the cheaper of the two stocks on book value and sales basis, MNGA is more undervalued relative to its price target. Finally, MNGA has better sentiment signals based on short interest.