Spirit Realty Capital, Inc. (NYSE:SRC) shares are down more than -3.15% this year and recently decreased -0.24% or -$0.02 to settle at $8.31. Prologis, Inc. (NYSE:PLD), on the other hand, is down -1.91% year to date as of 05/17/2018. It currently trades at $63.28 and has returned -3.52% during the past week.
Spirit Realty Capital, Inc. (NYSE:SRC) and Prologis, Inc. (NYSE:PLD) are the two most active stocks in the REIT – Diversified industry 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect SRC to grow earnings at a 37.47% annual rate over the next 5 years. Comparatively, PLD is expected to grow at a -6.05% annual rate. All else equal, SRC’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 115.84% for Prologis, Inc. (PLD). SRC’s ROI is 0.20% while PLD has a ROI of 2.60%. The interpretation is that PLD’s business generates a higher return on investment than SRC’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SRC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, PLD’s free cash flow per share was +0.10. On a percent-of-sales basis, SRC’s free cash flow was 0% while PLD converted 2.04% of its revenues into cash flow. This means that, for a given level of sales, PLD is able to generate more free cash flow for investors.Financial Risk
SRC’s debt-to-equity ratio is 1.25 versus a D/E of 0.61 for PLD. SRC is therefore the more solvent of the two companies, and has lower financial risk.
SRC trades at a forward P/E of 35.06, a P/B of 1.23, and a P/S of 5.32, compared to a forward P/E of 34.35, a P/B of 2.16, and a P/S of 12.56 for PLD. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SRC is currently priced at a -10.74% to its one-year price target of 9.31. Comparatively, PLD is -10.5% relative to its price target of 70.70. This suggests that SRC 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. SRC has a beta of 0.54 and PLD’s beta is 0.86. SRC’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. SRC has a short ratio of 2.15 compared to a short interest of 2.82 for PLD. This implies that the market is currently less bearish on the outlook for SRC.Summary
Prologis, Inc. (NYSE:PLD) beats Spirit Realty Capital, Inc. (NYSE:SRC) on a total of 7 of the 14 factors compared between the two stocks. PLD is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, SAN has better sentiment signals based on short interest.