New York Mortgage Trust, Inc. (NASDAQ:NYMT) shares are up more than 3.73% this year and recently decreased -0.31% or -$0.02 to settle at $6.40. Hovnanian Enterprises, Inc. (NYSE:HOV), on the other hand, is down -52.54% year to date as of 09/11/2018. It currently trades at $1.59 and has returned 2.58% during the past week.
New York Mortgage Trust, Inc. (NASDAQ:NYMT) and Hovnanian Enterprises, Inc. (NYSE:HOV) are the two most active stocks in the REIT – Residential 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 NYMT to grow earnings at a 2.52% annual rate over the next 5 years.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. New York Mortgage Trust, Inc. (NYMT) has an EBITDA margin of 360.64%. This suggests that NYMT underlying business is more profitable NYMT’s ROI is 0.80% while HOV has a ROI of -16.80%. The interpretation is that NYMT’s business generates a higher return on investment than HOV’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, NYMT’s free cash flow was -0.01% while HOV converted 0% of its revenues into cash flow. This means that, for a given level of sales, HOV is able to generate more free cash flow for investors.Valuation
NYMT trades at a forward P/E of 11.55, a P/B of 1.02, and a P/S of 1.77, compared to a P/S of 0.11 for HOV. NYMT 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. NYMT is currently priced at a 7.74% to its one-year price target of 5.94. Comparatively, HOV is 4.61% relative to its price target of 1.52. This suggests that HOV 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. NYMT has a beta of 1.19 and HOV’s beta is 1.63. NYMT’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. NYMT has a short ratio of 11.36 compared to a short interest of 11.97 for HOV. This implies that the market is currently less bearish on the outlook for NYMT.Summary
Hovnanian Enterprises, Inc. (NYSE:HOV) beats New York Mortgage Trust, Inc. (NASDAQ:NYMT) on a total of 7 of the 14 factors compared between the two stocks. HOV is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HOV is the cheaper of the two stocks on an earnings, book value and sales basis, HOV is more undervalued relative to its price target. Finally, EGAN has better sentiment signals based on short interest.