Piedmont Office Realty Trust, Inc. (NYSE:PDM) shares are down more than -8.21% this year and recently decreased -0.33% or -$0.06 to settle at $18.00. New York REIT, Inc. (NYSE:NYRT), on the other hand, is down -1.44% year to date as of 02/09/2018. It currently trades at $1.97 and has returned -1.99% during the past week.
Piedmont Office Realty Trust, Inc. (NYSE:PDM) and New York REIT, Inc. (NYSE:NYRT) are the two most active stocks in the REIT – Office 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 PDM to grow earnings at a 4.00% annual rate over the next 5 years.
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 18.84% for New York REIT, Inc. (NYRT). PDM’s ROI is 1.70% while NYRT has a ROI of -2.60%. The interpretation is that PDM’s business generates a higher return on investment than NYRT’s.
Cash is king when it comes to investing. On a percent-of-sales basis, PDM’s free cash flow was 0% while NYRT converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, PDM is able to generate more free cash flow for investors.
PDM’s debt-to-equity ratio is 0.78 versus a D/E of 0.00 for NYRT. PDM is therefore the more solvent of the two companies, and has lower financial risk.
PDM trades at a forward P/E of 38.30, a P/B of 1.20, and a P/S of 4.56, compared to a P/B of 0.35, and a P/S of 1.86 for NYRT. PDM 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
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. PDM is currently priced at a -14.29% to its one-year price target of 21.00. Comparatively, NYRT is -34.33% relative to its price target of 3.00. This suggests that NYRT 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 PDM and 2.50 for NYRT, which implies that analysts are more bullish on the outlook for PDM.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. PDM has a beta of 0.64 and NYRT’s beta is -0.11. NYRT’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.PDM has a short ratio of 5.47 compared to a short interest of 1.32 for NYRT. This implies that the market is currently less bearish on the outlook for NYRT.
New York REIT, Inc. (NYSE:NYRT) beats Piedmont Office Realty Trust, Inc. (NYSE:PDM) on a total of 8 of the 14 factors compared between the two stocks. NYRT is growing fastly. In terms of valuation, NYRT is the cheaper of the two stocks on an earnings, book value and sales basis, NYRT is more undervalued relative to its price target. Finally, NYRT has better sentiment signals based on short interest.