Host Hotels & Resorts, Inc. (NYSE:HST) shares are down more than -1.06% this year and recently increased 0.61% or $0.12 to settle at $19.64. Nabors Industries Ltd. (NYSE:NBR), on the other hand, is up 0.15% year to date as of 02/14/2018. It currently trades at $6.84 and has returned -6.43% during the past week.
Host Hotels & Resorts, Inc. (NYSE:HST) and Nabors Industries Ltd. (NYSE:NBR) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect HST to grow earnings at a 28.40% annual rate over the next 5 years. Comparatively, NBR is expected to grow at a 7.00% annual rate. All else equal, HST’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Host Hotels & Resorts, Inc. (HST) has an EBITDA margin of 22.21%. This suggests that HST underlying business is more profitable HST’s ROI is 6.10% while NBR has a ROI of -8.60%. The interpretation is that HST’s business generates a higher return on investment than NBR’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HST’s free cash flow (“FCF”) per share for the trailing twelve months was +0.05. Comparatively, NBR’s free cash flow per share was -0.63. On a percent-of-sales basis, HST’s free cash flow was 0.68% while NBR converted -9.97% of its revenues into cash flow. This means that, for a given level of sales, HST is able to generate more free cash flow for investors.
Liquidity and Financial Risk
HST’s debt-to-equity ratio is 0.56 versus a D/E of 1.36 for NBR. NBR is therefore the more solvent of the two companies, and has lower financial risk.
HST trades at a forward P/E of 28.84, a P/B of 2.05, and a P/S of 2.70, compared to a P/B of 0.66, and a P/S of 0.94 for NBR. HST 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
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”. HST is currently priced at a -4.2% to its one-year price target of 20.50. Comparatively, NBR is -25% relative to its price target of 9.12. This suggests that NBR 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 2.50 for HST and 2.10 for NBR, which implies that analysts are more bullish on the outlook for HST.
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. HST has a beta of 1.25 and NBR’s beta is 1.55. HST’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. HST has a short ratio of 5.83 compared to a short interest of 4.52 for NBR. This implies that the market is currently less bearish on the outlook for NBR.
Nabors Industries Ltd. (NYSE:NBR) beats Host Hotels & Resorts, Inc. (NYSE:HST) on a total of 7 of the 14 factors compared between the two stocks. NBR is growing fastly. In terms of valuation, NBR is the cheaper of the two stocks on an earnings, book value and sales basis, NBR is more undervalued relative to its price target. Finally, NBR has better sentiment signals based on short interest.