Crown Castle International Corp. (REIT) (NYSE:CCI) shares are down more than -4.49% this year and recently increased 0.67% or $0.71 to settle at $106.03. 8×8, Inc. (NYSE:EGHT), on the other hand, is up 13.48% year to date as of 01/17/2018. It currently trades at $16.00 and has returned 9.97% during the past week.
Crown Castle International Corp. (REIT) (NYSE:CCI) and 8×8, Inc. (NYSE:EGHT) are the two most active stocks in the Diversified Communication Services 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CCI to grow earnings at a 16.34% annual rate over the next 5 years. Comparatively, EGHT is expected to grow at a -5.20% annual rate. All else equal, CCI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 0.31% for 8×8, Inc. (EGHT). CCI’s ROI is 4.50% while EGHT has a ROI of -2.30%. The interpretation is that CCI’s business generates a higher return on investment than EGHT’s.
Cash is king when it comes to investing. CCI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.48. Comparatively, EGHT’s free cash flow per share was +0.04. On a percent-of-sales basis, CCI’s free cash flow was -4.97% while EGHT converted 0% of its revenues into cash flow. This means that, for a given level of sales, EGHT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CCI has a current ratio of 7.10 compared to 3.90 for EGHT. This means that CCI can more easily cover its most immediate liabilities over the next twelve months. CCI’s debt-to-equity ratio is 1.20 versus a D/E of 0.00 for EGHT. CCI is therefore the more solvent of the two companies, and has lower financial risk.
CCI trades at a forward P/E of 88.14, a P/B of 3.31, and a P/S of 10.30, compared to a forward P/E of 183.91, a P/B of 4.78, and a P/S of 5.53 for EGHT. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CCI is currently priced at a -7.94% to its one-year price target of 115.17. Comparatively, EGHT is -9.09% relative to its price target of 17.60. This suggests that EGHT 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 CCI and 2.20 for EGHT, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CCI has a beta of 0.28 and EGHT’s beta is 0.52. CCI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CCI has a short ratio of 3.74 compared to a short interest of 3.34 for EGHT. This implies that the market is currently less bearish on the outlook for EGHT.
Crown Castle International Corp. (REIT) (NYSE:CCI) beats 8×8, Inc. (NYSE:EGHT) on a total of 7 of the 14 factors compared between the two stocks. CCI is growing fastly, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, CCI is the cheaper of the two stocks on an earnings and book value, Finally, SBAC has better sentiment signals based on short interest.