Agree Realty Corporation (NYSE:ADC) and RE/MAX Holdings, Inc. (NYSE:RMAX) are the two most active stocks in the Property Management industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ADC to grow earnings at a -0.90% annual rate over the next 5 years. Comparatively, RMAX is expected to grow at a 8.50% annual rate. All else equal, RMAX’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. Agree Realty Corporation (ADC) has an EBITDA margin of 95.75%, compared to an EBITDA margin of 92.74% for RE/MAX Holdings, Inc. (RMAX). This suggests that ADC underlying business is more profitable. ADC’s ROI is 4.70% while RMAX has a ROI of 8.10%. The interpretation is that RMAX’s business generates a higher return on investment than ADC’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ADC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.34. Comparatively, RMAX’s free cash flow per share was +0.84. On a percent-of-sales basis, ADC’s free cash flow was 0.01% while RMAX converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, ADC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. ADC’s debt-to-equity ratio is 0.55 versus a D/E of 0.49 for RMAX. ADC is therefore the more solvent of the two companies, and has lower financial risk.
ADC trades at a forward P/E of 28.58, a P/B of 1.62, and a P/S of 13.61, compared to a forward P/E of 29.43, a P/B of 2.28, and a P/S of 5.81 for RMAX. 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”. ADC is currently priced at a -7.33% to its one-year price target of $52.68. Comparatively, RMAX is 6% relative to its price target of $57.17. This suggests that ADC is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for ADC and 3.10 for RMAX, which implies that analysts are more bullish on the outlook for RMAX.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. ADC has a beta of 0.62 and RMAX’s beta is 0.91. ADC’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. ADC has a short ratio of 1.66 compared to a short interest of 10.50 for RMAX. This implies that the market is currently less bearish on the outlook for ADC.
Agree Realty Corporation (NYSE:ADC) beats RE/MAX Holdings, Inc. (NYSE:RMAX) on a total of 7 of the 13 factors compared between the two stocks. ADC is more profitable. In terms of valuation, ADC is the cheaper of the two stocks on an earnings and book value, ADC is more undervalued relative to its price target. Finally, ADC has better sentiment signals based on short interest.