CubeSmart (NYSE:CUBE) shares are up more than 8.82% this year and recently increased 0.80% or $0.23 to settle at $29.13. Prologis, Inc. (NYSE:PLD), on the other hand, is up 26.71% year to date as of 11/22/2017. It currently trades at $66.89 and has returned 1.98% during the past week.
CubeSmart (NYSE:CUBE) and Prologis, Inc. (NYSE:PLD) are the two most active stocks in the REIT – Industrial 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CUBE to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, PLD is expected to grow at a 10.60% annual rate. All else equal, PLD’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 118.95% for Prologis, Inc. (PLD). CUBE’s ROI is 4.40% while PLD has a ROI of 2.40%. The interpretation is that CUBE’s business generates a higher return on investment than PLD’s.
Cash is king when it comes to investing. CUBE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, PLD’s free cash flow per share was +0.56. On a percent-of-sales basis, CUBE’s free cash flow was 0% while PLD converted 11.76% of its revenues into cash flow. This means that, for a given level of sales, PLD is able to generate more free cash flow for investors.
CUBE’s debt-to-equity ratio is 1.00 versus a D/E of 0.63 for PLD. CUBE is therefore the more solvent of the two companies, and has lower financial risk.
CUBE trades at a forward P/E of 38.58, a P/B of 3.25, and a P/S of 9.72, compared to a forward P/E of 42.47, a P/B of 2.30, and a P/S of 13.75 for PLD. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. CUBE is currently priced at a 4.67% to its one-year price target of 27.83. Comparatively, PLD is 332.66% relative to its price target of 15.46. This suggests that CUBE 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 2.60 for CUBE and 2.90 for PLD, which implies that analysts are more bullish on the outlook for PLD.
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. CUBE has a beta of 0.23 and PLD’s beta is 0.94. CUBE’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CUBE has a short ratio of 8.88 compared to a short interest of 3.07 for PLD. This implies that the market is currently less bearish on the outlook for PLD.
Prologis, Inc. (NYSE:PLD) beats CubeSmart (NYSE:CUBE) on a total of 7 of the 14 factors compared between the two stocks. PLD generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, PLD has better sentiment signals based on short interest.