Vale S.A. (NYSE:VALE) shares are up more than 15.05% this year and recently decreased -3.41% or -$0.48 to settle at $13.60. Physicians Realty Trust (NYSE:DOC), on the other hand, is down -2.95% year to date as of 12/04/2018. It currently trades at $17.46 and has returned 1.28% during the past week.
Vale S.A. (NYSE:VALE) and Physicians Realty Trust (NYSE:DOC) are the two most active stocks based on recent 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. Analysts expect VALE to grow earnings at a 19.56% annual rate over the next 5 years. Comparatively, DOC is expected to grow at a 9.70% annual rate. All else equal, VALE’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. EBITDA margin of 78.49% for Physicians Realty Trust (DOC). VALE’s ROI is 13.70% while DOC has a ROI of 0.90%. The interpretation is that VALE’s business generates a higher return on investment than DOC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. VALE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.97. Comparatively, DOC’s free cash flow per share was -0.04. On a percent-of-sales basis, VALE’s free cash flow was 14.9% while DOC converted -0% of its revenues into cash flow. This means that, for a given level of sales, VALE is able to generate more free cash flow for investors.Liquidity and Financial Risk
VALE’s debt-to-equity ratio is 0.41 versus a D/E of 0.63 for DOC. DOC is therefore the more solvent of the two companies, and has lower financial risk.
VALE trades at a forward P/E of 7.66, a P/B of 1.66, and a P/S of 2.15, compared to a forward P/E of 88.18, a P/B of 1.32, and a P/S of 7.67 for DOC. 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. VALE is currently priced at a -21.52% to its one-year price target of 17.33. Comparatively, DOC is -3% relative to its price target of 18.00. This suggests that VALE 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. VALE has a beta of 1.53 and DOC’s beta is 0.44. DOC’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. VALE has a short ratio of 3.25 compared to a short interest of 2.99 for DOC. This implies that the market is currently less bearish on the outlook for DOC.Summary
Vale S.A. (NYSE:VALE) beats Physicians Realty Trust (NYSE:DOC) on a total of 9 of the 14 factors compared between the two stocks. VALE is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, VALE is the cheaper of the two stocks on an earnings and sales basis, VALE is more undervalued relative to its price target. Finally, PAAS has better sentiment signals based on short interest.