GGP Inc. (NYSE:GGP) shares are down more than -23.54% this year and recently decreased -2.90% or -$0.57 to settle at $19.10. DDR Corp. (NYSE:DDR), on the other hand, is down -48.13% year to date as of 11/03/2017. It currently trades at $7.92 and has returned 0.25% during the past week.
GGP Inc. (NYSE:GGP) and DDR Corp. (NYSE:DDR) are the two most active stocks in the REIT – Retail 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect GGP to grow earnings at a 5.70% annual rate over the next 5 years. Comparatively, DDR is expected to grow at a -2.75% annual rate. All else equal, GGP’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 52.66% for DDR Corp. (DDR). GGP’s ROI is 3.80% while DDR has a ROI of 2.10%. The interpretation is that GGP’s business generates a higher return on investment than DDR’s.
If there’s one thing investors care more about than earnings, it’s cash flow. GGP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, DDR’s free cash flow per share was -. On a percent-of-sales basis, GGP’s free cash flow was 5.65% while DDR converted 0% of its revenues into cash flow. This means that, for a given level of sales, GGP is able to generate more free cash flow for investors.
GGP’s debt-to-equity ratio is 1.70 versus a D/E of 1.68 for DDR. GGP is therefore the more solvent of the two companies, and has lower financial risk.
GGP trades at a forward P/E of 32.87, a P/B of 2.09, and a P/S of 7.51, compared to a forward P/E of 2640.00, a P/B of 1.07, and a P/S of 3.08 for DDR. GGP is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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. GGP is currently priced at a -23.66% to its one-year price target of 25.02. Comparatively, DDR is -27.61% relative to its price target of 10.94. This suggests that DDR 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 2.30 for GGP and 2.80 for DDR, which implies that analysts are more bullish on the outlook for DDR.
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. GGP has a beta of 0.78 and DDR’s beta is 0.78. DDR’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. GGP has a short ratio of 12.22 compared to a short interest of 1.96 for DDR. This implies that the market is currently less bearish on the outlook for DDR.
GGP Inc. (NYSE:GGP) beats DDR Corp. (NYSE:DDR) on a total of 8 of the 14 factors compared between the two stocks. GGP is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, RPAI has better sentiment signals based on short interest.