Earnings

Dissecting the Numbers for Ladder Capital Corp (LADR) and NetApp, Inc. (NTAP)

 

Ladder Capital Corp (NYSE:LADR) shares are up more than 10.56% this year and recently decreased -1.76% or -$0.27 to settle at $15.07. NetApp, Inc. (NASDAQ:NTAP), on the other hand, is up 17.19% year to date as of 03/13/2018. It currently trades at $64.83 and has returned 1.61% during the past week.

Ladder Capital Corp (NYSE:LADR) and NetApp, Inc. (NASDAQ:NTAP) 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.

Growth

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 LADR to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, NTAP is expected to grow at a 14.36% annual rate. All else equal, NTAP’s higher growth rate would imply a greater potential for capital appreciation.



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. , compared to an EBITDA margin of 22.85% for NetApp, Inc. (NTAP). LADR’s ROI is 2.20% while NTAP has a ROI of 10.70%. The interpretation is that NTAP’s business generates a higher return on investment than LADR’s.

Cash Flow 




The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, LADR’s free cash flow was 0% while NTAP converted 6.07% of its revenues into cash flow. This means that, for a given level of sales, NTAP is able to generate more free cash flow for investors.

Liquidity and Financial Risk

LADR’s debt-to-equity ratio is 3.55 versus a D/E of 1.00 for NTAP. LADR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

LADR trades at a forward P/E of 9.12, a P/B of 1.09, and a P/S of 3.72, compared to a forward P/E of 17.24, a P/B of 7.98, and a P/S of 3.02 for NTAP. 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. LADR is currently priced at a -4.62% to its one-year price target of 15.80. Comparatively, NTAP is 2.47% relative to its price target of 63.27. This suggests that LADR 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 1.80 for LADR and 2.40 for NTAP, which implies that analysts are more bullish on the outlook for NTAP.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. LADR has a beta of 1.01 and NTAP’s beta is 1.30. LADR’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. LADR has a short ratio of 0.67 compared to a short interest of 2.90 for NTAP. This implies that the market is currently less bearish on the outlook for LADR.

Summary

NetApp, Inc. (NASDAQ:NTAP) beats Ladder Capital Corp (NYSE:LADR) on a total of 7 of the 14 factors compared between the two stocks. NTAP is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, BKD has better sentiment signals based on short interest.

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