Mobile Mini, Inc. (NASDAQ:MINI) and Veritiv Corporation (NYSE:VRTV) are the two most active stocks in the Packaging & Containers 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect MINI to grow earnings at a 14.00% annual rate over the next 5 years. Comparatively, VRTV is expected to grow at a 21.70% annual rate. All else equal, VRTV’s higher growth rate would imply a greater potential for capital appreciation.
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. Mobile Mini, Inc. (MINI) has an EBITDA margin of 33.91%, compared to an EBITDA margin of 1.26% for Veritiv Corporation (VRTV). This suggests that MINI underlying business is more profitable. MINI’s ROI is 4.90% while VRTV has a ROI of 3.80%. The interpretation is that MINI’s business generates a higher return on investment than VRTV’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MINI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.06. Comparatively, VRTV’s free cash flow per share was +1.72. On a percent-of-sales basis, MINI’s free cash flow was 0% while VRTV converted 0.32% of its revenues into cash flow. This means that, for a given level of sales, VRTV is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. MINI’s debt-to-equity ratio is 1.22 versus a D/E of 1.83 for VRTV. VRTV is therefore the more solvent of the two companies, and has lower financial risk.
MINI trades at a forward P/E of 21.54, a P/B of 1.77, and a P/S of 2.76, compared to a forward P/E of 9.15, a P/B of 0.82, and a P/S of 0.05 for VRTV. MINI 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. MINI is currently priced at a -12.93% to its one-year price target of $35.20. Comparatively, VRTV is -24.21% relative to its price target of $37.67. This suggests that VRTV is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for MINI and 2.80 for VRTV, which implies that analysts are more bullish on the outlook for VRTV.
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. MINI has a beta of 2.17.
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. MINI has a short ratio of 16.31 compared to a short interest of 3.10 for VRTV. This implies that the market is currently less bearish on the outlook for VRTV.
Veritiv Corporation (NYSE:VRTV) beats Mobile Mini, Inc. (NASDAQ:MINI) on a total of 8 of the 12 factors compared between the two stocks. VRTV is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, VRTV is the cheaper of the two stocks on an earnings, book value and sales basis, VRTV is more undervalued relative to its price target. Finally, VRTV has better sentiment signals based on short interest.