Government Properties Income Trust (NASDAQ:GOV) shares are down more than -49.46% this year and recently increased 6.12% or $0.54 to settle at $9.37. Glu Mobile Inc. (NASDAQ:GLUU), on the other hand, is up 96.15% year to date as of 11/01/2018. It currently trades at $7.14 and has returned 11.21% during the past week.
Government Properties Income Trust (NASDAQ:GOV) and Glu Mobile Inc. (NASDAQ:GLUU) are the two most active stocks in the REIT – Office industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect GOV to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, GLUU is expected to grow at a 15.00% annual rate. All else equal, GLUU’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. Government Properties Income Trust (GOV) has an EBITDA margin of 59.23%. This suggests that GOV underlying business is more profitable GOV’s ROI is 1.50% while GLUU has a ROI of -81.60%. The interpretation is that GOV’s business generates a higher return on investment than GLUU’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. GOV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.15. Comparatively, GLUU’s free cash flow per share was +0.08. On a percent-of-sales basis, GOV’s free cash flow was 0% while GLUU converted 0% of its revenues into cash flow. This means that, for a given level of sales, GOV is able to generate more free cash flow for investors.Liquidity and Financial Risk
GOV’s debt-to-equity ratio is 1.67 versus a D/E of 0.00 for GLUU. GOV is therefore the more solvent of the two companies, and has lower financial risk.
GOV trades at a forward P/E of 34.70, a P/B of 0.72, and a P/S of 2.62, compared to a forward P/E of 20.52, a P/B of 6.10, and a P/S of 2.80 for GLUU. 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. GOV is currently priced at a -30.02% to its one-year price target of 13.39. Comparatively, GLUU is -1.52% relative to its price target of 7.25. This suggests that GOV 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. GOV has a beta of 1.22 and GLUU’s beta is 1.14. GLUU’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. GOV has a short ratio of 8.00 compared to a short interest of 1.66 for GLUU. This implies that the market is currently less bearish on the outlook for GLUU.Summary
Glu Mobile Inc. (NASDAQ:GLUU) beats Government Properties Income Trust (NASDAQ:GOV) on a total of 7 of the 14 factors compared between the two stocks. GLUU is more profitable, higher liquidity and has lower financial risk. Finally, GLUU has better sentiment signals based on short interest.