Gramercy Property Trust (NYSE:GPT) shares are down more than -16.17% this year and recently increased 2.15% or $0.47 to settle at $22.35. Halcon Resources Corporation (NYSE:HK), on the other hand, is down -7.66% year to date as of 02/23/2018. It currently trades at $6.99 and has returned -0.29% during the past week.
Gramercy Property Trust (NYSE:GPT) and Halcon Resources Corporation (NYSE:HK) are the two most active stocks in the market 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 GPT to grow earnings at a 7.00% annual rate over the next 5 years.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Gramercy Property Trust (GPT) has an EBITDA margin of 86.01%. This suggests that GPT underlying business is more profitable GPT’s ROI is 1.80% while HK has a ROI of -25.10%. The interpretation is that GPT’s business generates a higher return on investment than HK’s.
If there’s one thing investors care more about than earnings, it’s cash flow. GPT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.47. Comparatively, HK’s free cash flow per share was -7.22. On a percent-of-sales basis, GPT’s free cash flow was 0.01% while HK converted -0.27% of its revenues into cash flow. This means that, for a given level of sales, GPT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
GPT’s debt-to-equity ratio is 0.95 versus a D/E of 0.70 for HK. GPT is therefore the more solvent of the two companies, and has lower financial risk.
GPT trades at a forward P/E of 57.60, a P/B of 1.11, and a P/S of 6.73, compared to a forward P/E of 46.29, a P/B of 0.88, and a P/S of 2.13 for HK. GPT 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
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. GPT is currently priced at a -26.98% to its one-year price target of 30.61. Comparatively, HK is -38.58% relative to its price target of 11.38. This suggests that HK 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 GPT and 2.10 for HK, which implies that analysts are more bullish on the outlook for GPT.
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. GPT has a beta of 0.58 and HK’s beta is 3.89. GPT’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. GPT has a short ratio of 1.56 compared to a short interest of 3.74 for HK. This implies that the market is currently less bearish on the outlook for GPT.
Halcon Resources Corporation (NYSE:HK) beats Gramercy Property Trust (NYSE:GPT) on a total of 7 of the 14 factors compared between the two stocks. HK is growing fastly and has lower financial risk. In terms of valuation, HK is the cheaper of the two stocks on an earnings, book value and sales basis, HK is more undervalued relative to its price target. Finally, AOBC has better sentiment signals based on short interest.