GGP Inc. (NYSE:GGP) shares are down more than -12.83% this year and recently increased 0.44% or $0.09 to settle at $20.39. Weyerhaeuser Company (NYSE:WY), on the other hand, is up 2.92% year to date as of 05/17/2018. It currently trades at $36.29 and has returned -1.33% during the past week.
GGP Inc. (NYSE:GGP) and Weyerhaeuser Company (NYSE:WY) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.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 GGP to grow earnings at a 5.70% annual rate over the next 5 years. Comparatively, WY is expected to grow at a 5.00% annual rate. All else equal, GGP’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 22.9% for Weyerhaeuser Company (WY). GGP’s ROI is 4.10% while WY has a ROI of 6.80%. The interpretation is that WY’s business generates a higher return on investment than GGP’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GGP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, WY’s free cash flow per share was -0.25. On a percent-of-sales basis, GGP’s free cash flow was 5.76% while WY converted -2.63% of its revenues into cash flow. This means that, for a given level of sales, GGP is able to generate more free cash flow for investors.Liquidity and Financial Risk
GGP’s debt-to-equity ratio is 1.56 versus a D/E of 0.72 for WY. GGP is therefore the more solvent of the two companies, and has lower financial risk.
GGP trades at a forward P/E of 37.48, a P/B of 2.32, and a P/S of 8.36, compared to a forward P/E of 23.67, a P/B of 3.05, and a P/S of 3.71 for WY. GGP is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. GGP is currently priced at a -13.38% to its one-year price target of 23.54. Comparatively, WY is -4.5% relative to its price target of 38.00. This suggests that GGP is the better investment over the next year.
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. GGP has a beta of 0.90 and WY’s beta is 1.35. GGP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. GGP has a short ratio of 1.50 compared to a short interest of 3.08 for WY. This implies that the market is currently less bearish on the outlook for GGP.Summary
GGP Inc. (NYSE:GGP) beats Weyerhaeuser Company (NYSE:WY) on a total of 8 of the 14 factors compared between the two stocks. GGP is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. GGP is more undervalued relative to its price target. Finally, GGP has better sentiment signals based on short interest.