VICI Properties Inc. (NYSE:VICI) shares are down more than -3.90% this year and recently increased 0.25% or $0.05 to settle at $19.70. Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), on the other hand, is up 14.97% year to date as of 05/17/2018. It currently trades at $7.68 and has returned -3.03% during the past week.
VICI Properties Inc. (NYSE:VICI) and Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) are the two most active stocks in the REIT – Diversified 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 increase earnings at a high compound rate over time are attractive to investors. Comparatively, ERIC is expected to grow at a 1.40% annual rate. All else equal, ERIC’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. VICI Properties Inc. (VICI) has an EBITDA margin of 73.08%. This suggests that VICI underlying business is more profitable VICI’s ROI is 1.10% while ERIC has a ROI of -23.60%. The interpretation is that VICI’s business generates a higher return on investment than ERIC’s.Cash Flow
Cash is king when it comes to investing. VICI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.36. Comparatively, ERIC’s free cash flow per share was +0.22. On a percent-of-sales basis, VICI’s free cash flow was 0.07% while ERIC converted 3.11% of its revenues into cash flow. This means that, for a given level of sales, ERIC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. VICI has a current ratio of 21.60 compared to 1.50 for ERIC. This means that VICI can more easily cover its most immediate liabilities over the next twelve months. VICI’s debt-to-equity ratio is 0.68 versus a D/E of 0.36 for ERIC. VICI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
VICI trades at a forward P/E of 12.71, a P/B of 1.12, and a P/S of 35.99, compared to a forward P/E of 23.93, a P/B of 2.36, and a P/S of 1.12 for ERIC. 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. VICI is currently priced at a -9.76% to its one-year price target of 21.83. Comparatively, ERIC is 4.35% relative to its price target of 7.36. This suggests that VICI is the better investment over the next year.
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. VICI has a short ratio of 1.47 compared to a short interest of 3.08 for ERIC. This implies that the market is currently less bearish on the outlook for VICI.Summary
VICI Properties Inc. (NYSE:VICI) beats Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) on a total of 10 of the 14 factors compared between the two stocks. VICI is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, VICI is the cheaper of the two stocks on an earnings and book value, VICI is more undervalued relative to its price target. Finally, VICI has better sentiment signals based on short interest.