Kimco Realty Corporation (NYSE:KIM) shares are down more than -19.12% this year and recently decreased -0.07% or -$0.01 to settle at $14.68. Salesforce.com, inc. (NYSE:CRM), on the other hand, is up 23.97% year to date as of 03/13/2018. It currently trades at $126.73 and has returned 1.81% during the past week.
Kimco Realty Corporation (NYSE:KIM) and Salesforce.com, inc. (NYSE:CRM) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 KIM to grow earnings at a 4.60% annual rate over the next 5 years. Comparatively, CRM is expected to grow at a 25.76% annual rate. All else equal, CRM’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 14.7% for Salesforce.com, inc. (CRM). KIM’s ROI is 3.10% while CRM has a ROI of 2.10%. The interpretation is that KIM’s business generates a higher return on investment than CRM’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, KIM’s free cash flow was 0% while CRM converted 0.14% of its revenues into cash flow. This means that, for a given level of sales, CRM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
KIM’s debt-to-equity ratio is 1.02 versus a D/E of 0.29 for CRM. KIM is therefore the more solvent of the two companies, and has lower financial risk.
KIM trades at a forward P/E of 23.95, a P/B of 1.15, and a P/S of 5.44, compared to a forward P/E of 48.84, a P/B of 10.29, and a P/S of 8.66 for CRM. KIM is the cheaper 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. KIM is currently priced at a -19.78% to its one-year price target of 18.30. Comparatively, CRM is -7% relative to its price target of 136.27. This suggests that KIM 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 2.80 for KIM and 1.70 for CRM, which implies that analysts are more bullish on the outlook for KIM.
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. KIM has a beta of 0.47 and CRM’s beta is 1.25. KIM’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. KIM has a short ratio of 2.24 compared to a short interest of 2.74 for CRM. This implies that the market is currently less bearish on the outlook for KIM.
Kimco Realty Corporation (NYSE:KIM) beats Salesforce.com, inc. (NYSE:CRM) on a total of 8 of the 14 factors compared between the two stocks. KIM is more profitable and generates a higher return on investment. In terms of valuation, KIM is the cheaper of the two stocks on an earnings, book value and sales basis, KIM is more undervalued relative to its price target. Finally, KIM has better sentiment signals based on short interest.