Ladder Capital Corp (NYSE:LADR) and Global Net Lease, Inc. (NYSE:GNL) are the two most active stocks in the REIT – Diversified 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.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Ladder Capital Corp (LADR) has an EBITDA margin of 92.28%, compared to an EBITDA margin of 80.8% for Global Net Lease, Inc. (GNL). This suggests that LADR underlying business is more profitable. LADR’s ROI is 2.30% while GNL has a ROI of 2.00%. The interpretation is that LADR’s business generates a higher return on investment than GNL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. LADR’s free cash flow (“FCF”) per share for the trailing twelve months was -2.76. Comparatively, GNL’s free cash flow per share was +0.01. On a percent-of-sales basis, LADR’s free cash flow was -0.21% while GNL converted 0% of its revenues into cash flow. This means that, for a given level of sales, GNL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. LADR’s debt-to-equity ratio is 3.55 versus a D/E of 1.13 for GNL. LADR is therefore the more solvent of the two companies, and has lower financial risk.
LADR trades at a forward P/E of 8.81, a P/B of 0.97, and a P/S of 3.33, compared to a forward P/B of 1.07, and a P/S of 6.15 for GNL. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. LADR is currently priced at a -11.81% to its one-year price target of $15.50. Comparatively, GNL is -18.12% relative to its price target of $26.00. This suggests that GNL 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 2.00 for LADR and 3.00 for GNL, which implies that analysts are more bullish on the outlook for GNL.
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. LADR has a beta of 1.09.
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. LADR has a short ratio of 2.07 compared to a short interest of 5.87 for GNL. This implies that the market is currently less bearish on the outlook for LADR.
Ladder Capital Corp (NYSE:LADR) beats Global Net Lease, Inc. (NYSE:GNL) on a total of 6 of the 10 factors compared between the two stocks. LADR is more profitable and generates a higher return on investment. In terms of valuation, LADR is the cheaper of the two stocks on book value and sales basis, Finally, LADR has better sentiment signals based on short interest.