Taylor Morrison Home Corporation (NYSE:TMHC) shares are down more than -12.63% this year and recently decreased -3.78% or -$0.84 to settle at $21.38. Kite Realty Group Trust (NYSE:KRG), on the other hand, is down -16.43% year to date as of 06/13/2018. It currently trades at $16.38 and has returned -0.49% during the past week.
Taylor Morrison Home Corporation (NYSE:TMHC) and Kite Realty Group Trust (NYSE:KRG) are the two most active stocks in the Residential Construction 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
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 TMHC to grow earnings at a 20.70% annual rate over the next 5 years.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 60.88% for Kite Realty Group Trust (KRG). TMHC’s ROI is 3.70% while KRG has a ROI of 2.00%. The interpretation is that TMHC’s business generates a higher return on investment than KRG’s.Cash Flow
Cash is king when it comes to investing. TMHC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, KRG’s free cash flow per share was -0.10. On a percent-of-sales basis, TMHC’s free cash flow was -0.03% while KRG converted -0% of its revenues into cash flow. This means that, for a given level of sales, KRG is able to generate more free cash flow for investors.Financial Risk
TMHC’s debt-to-equity ratio is 0.65 versus a D/E of 1.08 for KRG. KRG is therefore the more solvent of the two companies, and has lower financial risk.
TMHC trades at a forward P/E of 7.28, a P/B of 1.05, and a P/S of 0.64, compared to a forward P/E of 56.87, a P/B of 0.90, and a P/S of 3.84 for KRG. 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”. TMHC is currently priced at a -26.71% to its one-year price target of 29.17. Comparatively, KRG is -6.93% relative to its price target of 17.60. This suggests that TMHC is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. TMHC has a beta of 1.35 and KRG’s beta is 0.51. KRG’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. TMHC has a short ratio of 2.82 compared to a short interest of 1.41 for KRG. This implies that the market is currently less bearish on the outlook for KRG.Summary
Taylor Morrison Home Corporation (NYSE:TMHC) beats Kite Realty Group Trust (NYSE:KRG) on a total of 8 of the 14 factors compared between the two stocks. TMHC is growing fastly, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, TMHC is the cheaper of the two stocks on an earnings and sales basis, TMHC is more undervalued relative to its price target. Finally, AMG has better sentiment signals based on short interest.