Finance

Dissecting the Numbers for Twitter, Inc. (TWTR) and VEREIT, Inc. (VER)

Twitter, Inc. (NYSE:TWTR) shares are up more than 35.69% this year and recently decreased -0.58% or -$0.19 to settle at $32.58. VEREIT, Inc. (NYSE:VER), on the other hand, is down -11.68% year to date as of 05/17/2018. It currently trades at $6.88 and has returned -3.23% during the past week.

Twitter, Inc. (NYSE:TWTR) and VEREIT, Inc. (NYSE:VER) are the two most active stocks in the Internet Information Providers 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.

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 TWTR to grow earnings at a 34.80% annual rate over the next 5 years. Comparatively, VER is expected to grow at a 5.00% annual rate. All else equal, TWTR’s higher growth rate would imply a greater potential for capital appreciation.

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 53.48% for VEREIT, Inc. (VER). TWTR’s ROI is 4.60% while VER has a ROI of 1.90%. The interpretation is that TWTR’s business generates a higher return on investment than VER’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. TWTR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.20. Comparatively, VER’s free cash flow per share was -0.01. On a percent-of-sales basis, TWTR’s free cash flow was 6.15% while VER converted -0.78% of its revenues into cash flow. This means that, for a given level of sales, TWTR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

TWTR’s debt-to-equity ratio is 0.35 versus a D/E of 0.78 for VER. VER is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TWTR trades at a forward P/E of 38.88, a P/B of 4.67, and a P/S of 9.49, compared to a P/B of 0.87, and a P/S of 5.37 for VER. TWTR 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. TWTR is currently priced at a 18.39% to its one-year price target of 27.52. Comparatively, VER is -14.96% relative to its price target of 8.09. This suggests that VER is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. TWTR has a beta of 0.88 and VER’s beta is 0.58. VER’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. TWTR has a short ratio of 1.17 compared to a short interest of 3.49 for VER. This implies that the market is currently less bearish on the outlook for TWTR.

Summary




VEREIT, Inc. (NYSE:VER) beats Twitter, Inc. (NYSE:TWTR) on a total of 7 of the 14 factors compared between the two stocks. VER is growing fastly. In terms of valuation, VER is the cheaper of the two stocks on an earnings, book value and sales basis, VER is more undervalued relative to its price target. Finally, GPS has better sentiment signals based on short interest.

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