Washington Prime Group Inc. (NYSE:WPG) and HFF, Inc. (NYSE:HF) are the two most active stocks in the Property Management 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.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Washington Prime Group Inc. (WPG) has an EBITDA margin of 74.78%, compared to an EBITDA margin of 28.09% for HFF, Inc. (HF). This suggests that WPG underlying business is more profitable. WPG’s ROI is 4.90% while HF has a ROI of 8.50%. The interpretation is that HF’s business generates a higher return on investment than WPG’s.
The value of a stock is simply the present value of its future free cash flows. WPG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, HF’s free cash flow per share was +2.80. On a percent-of-sales basis, WPG’s free cash flow was -0% while HF converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, HF 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. WPG’s debt-to-equity ratio is 3.17 versus a D/E of 3.41 for HF. HF is therefore the more solvent of the two companies, and has lower financial risk.
WPG trades at a forward P/E of 45.79, a P/B of 1.72, and a P/S of 2.00, compared to a forward P/E of 17.03, a P/B of 6.46, and a P/S of 2.58 for HF. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. WPG is currently priced at a -1.14% to its one-year price target of $8.80. Comparatively, HF is -1.33% relative to its price target of $37.50. This suggests that HF 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 3.00 for WPG and 2.70 for HF, which implies that analysts are more bullish on the outlook for WPG.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. HF’s beta is 1.22.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. WPG has a short ratio of 6.10 compared to a short interest of 6.07 for HF. This implies that the market is currently less bearish on the outlook for HF.
HFF, Inc. (NYSE:HF) beats Washington Prime Group Inc. (NYSE:WPG) on a total of 7 of the 11 factors compared between the two stocks. HF is more profitable, has higher cash flow per share and has a higher cash conversion rate. HF is more undervalued relative to its price target. Finally, HF has better sentiment signals based on short interest.