CBRE Group, Inc. (NYSE:CBG) shares are up more than 33.95% this year and recently increased 1.57% or $0.65 to settle at $42.18. Realogy Holdings Corp. (NYSE:RLGY), on the other hand, is up 2.95% year to date as of 11/13/2017. It currently trades at $26.49 and has returned -1.93% during the past week.
CBRE Group, Inc. (NYSE:CBG) and Realogy Holdings Corp. (NYSE:RLGY) 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.
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 CBG to grow earnings at a 11.33% annual rate over the next 5 years. Comparatively, RLGY is expected to grow at a 14.10% annual rate. All else equal, RLGY’s higher growth rate would imply a greater potential for capital appreciation.
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 13.16% for Realogy Holdings Corp. (RLGY). CBG’s ROI is 7.60% while RLGY has a ROI of 3.30%. The interpretation is that CBG’s business generates a higher return on investment than RLGY’s.
Cash is king when it comes to investing. CBG’s free cash flow (“FCF”) per share for the trailing twelve months was +1.36. Comparatively, RLGY’s free cash flow per share was +1.63. On a percent-of-sales basis, CBG’s free cash flow was 3.53% while RLGY converted 3.78% of its revenues into cash flow. This means that, for a given level of sales, RLGY is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CBG has a current ratio of 1.30 compared to 0.90 for RLGY. This means that CBG can more easily cover its most immediate liabilities over the next twelve months. CBG’s debt-to-equity ratio is 1.05 versus a D/E of 1.51 for RLGY. RLGY is therefore the more solvent of the two companies, and has lower financial risk.
CBG trades at a forward P/E of 15.24, a P/B of 3.76, and a P/S of 1.04, compared to a forward P/E of 14.33, a P/B of 1.47, and a P/S of 0.60 for RLGY. CBG is the expensive of the two stocks on an earnings, book value and sales basis. 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. CBG is currently priced at a -0.35% to its one-year price target of 42.33. Comparatively, RLGY is -20.21% relative to its price target of 33.20. This suggests that RLGY 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 1.90 for CBG and 2.20 for RLGY, which implies that analysts are more bullish on the outlook for RLGY.
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. CBG has a beta of 1.84 and RLGY’s beta is 1.40. RLGY’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.CBG has a short ratio of 4.56 compared to a short interest of 5.97 for RLGY. This implies that the market is currently less bearish on the outlook for CBG.
Realogy Holdings Corp. (NYSE:RLGY) beats CBRE Group, Inc. (NYSE:CBG) on a total of 9 of the 14 factors compared between the two stocks. RLGY generates a higher return on investment, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, RLGY is the cheaper of the two stocks on an earnings, book value and sales basis, RLGY is more undervalued relative to its price target. Finally, NYT has better sentiment signals based on short interest.