Colony NorthStar, Inc. (NYSE:CLNS) shares are down more than -8.88% this year and recently increased 0.24% or $0.03 to settle at $12.60. Lamar Advertising Company (REIT) (NASDAQ:LAMR), on the other hand, is up 13.46% year to date as of 11/10/2017. It currently trades at $76.29 and has returned 1.84% during the past week.
Colony NorthStar, Inc. (NYSE:CLNS) and Lamar Advertising Company (REIT) (NASDAQ:LAMR) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, LAMR is expected to grow at a 3.00% annual rate. All else equal, LAMR’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 43.35% for Lamar Advertising Company (REIT) (LAMR). CLNS’s ROI is 0.80% while LAMR has a ROI of 12.40%. The interpretation is that LAMR’s business generates a higher return on investment than CLNS’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, CLNS’s free cash flow was 0% while LAMR converted 1.18% of its revenues into cash flow. This means that, for a given level of sales, LAMR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CLNS’s debt-to-equity ratio is 1.52 versus a D/E of 2.25 for LAMR. LAMR is therefore the more solvent of the two companies, and has lower financial risk.
CLNS trades at a forward P/E of 28.83, a P/B of 0.93, and a P/S of 3.22, compared to a forward P/E of 23.20, a P/B of 6.86, and a P/S of 4.93 for LAMR. 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. CLNS is currently priced at a -23.36% to its one-year price target of 16.44. Comparatively, LAMR is 3.89% relative to its price target of 73.43. This suggests that CLNS 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 2.20 for CLNS and 2.80 for LAMR, which implies that analysts are more bullish on the outlook for LAMR.
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. CLNS has a beta of 1.48 and LAMR’s beta is 1.17. LAMR’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.CLNS has a short ratio of 4.10 compared to a short interest of 12.43 for LAMR. This implies that the market is currently less bearish on the outlook for CLNS.
Lamar Advertising Company (REIT) (NASDAQ:LAMR) beats Colony NorthStar, Inc. (NYSE:CLNS) on a total of 7 of the 14 factors compared between the two stocks. LAMR 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, SBRA has better sentiment signals based on short interest.