CYS Investments, Inc. (NYSE:CYS) shares are up more than 2.98% this year and recently increased 0.89% or $0.07 to settle at $7.96. Drive Shack Inc. (NYSE:DS), on the other hand, is up 8.78% year to date as of 11/13/2017. It currently trades at $4.09 and has returned 2.51% during the past week.
CYS Investments, Inc. (NYSE:CYS) and Drive Shack Inc. (NYSE:DS) 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. Analysts expect CYS to grow earnings at a -3.15% annual rate over the next 5 years. Comparatively, DS is expected to grow at a 8.10% annual rate. All else equal, DS’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. CYS Investments, Inc. (CYS) has an EBITDA margin of -30.2%. This suggests that DS underlying business is more profitable CYS’s ROI is 1.80% while DS has a ROI of 8.70%. The interpretation is that DS’s business generates a higher return on investment than CYS’s.
The value of a stock is simply the present value of its future free cash flows. CYS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, DS’s free cash flow per share was -0.35. On a percent-of-sales basis, CYS’s free cash flow was 0.01% while DS converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, CYS is able to generate more free cash flow for investors.
CYS’s debt-to-equity ratio is 7.73 versus a D/E of 3.45 for DS. CYS is therefore the more solvent of the two companies, and has lower financial risk.
CYS trades at a forward P/E of 8.61, a P/B of 0.90, and a P/S of 4.19, compared to a forward P/E of 6.82, a P/B of 1.99, and a P/S of 0.85 for DS. CYS is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. CYS is currently priced at a -0.5% to its one-year price target of 8.00. Comparatively, DS is 2.25% relative to its price target of 4.00. This suggests that CYS 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 3.60 for CYS and 2.50 for DS, which implies that analysts are more bullish on the outlook for CYS.
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. CYS has a beta of 0.70 and DS’s beta is 1.85. CYS’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.CYS has a short ratio of 1.50 compared to a short interest of 6.21 for DS. This implies that the market is currently less bearish on the outlook for CYS.
Drive Shack Inc. (NYSE:DS) beats CYS Investments, Inc. (NYSE:CYS) on a total of 7 of the 14 factors compared between the two stocks. DS has higher cash flow per share, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, DS is the cheaper of the two stocks on an earnings and sales basis,