Armada Hoffler Properties, Inc. (NYSE:AHH) and UMH Properties, Inc. (NYSE:UMH) are the two most active stocks in the REIT – Diversified 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.
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. Armada Hoffler Properties, Inc. (AHH) has an EBITDA margin of 18.85%, compared to an EBITDA margin of 50.39% for UMH Properties, Inc. (UMH). This suggests that UMH underlying business is more profitable. AHH’s ROI is 3.90% while UMH has a ROI of 3.30%. The interpretation is that AHH’s business generates a higher return on investment than UMH’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. AHH’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, UMH’s free cash flow per share was -0.08. On a percent-of-sales basis, AHH’s free cash flow was -0% while UMH converted -0% of its revenues into cash flow. This means that, for a given level of sales, AHH is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AHH’s debt-to-equity ratio is 2.00 versus a D/E of 2.20 for UMH. UMH is therefore the more solvent of the two companies, and has lower financial risk.
AHH trades at a forward P/E of 31.36, a P/B of 2.38, and a P/S of 2.66, compared to a forward P/B of 2.86, and a P/S of 4.98 for UMH. 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. AHH is currently priced at a -11.19% to its one-year price target of $14.83. Comparatively, UMH is -22.33% relative to its price target of $19.75. This suggests that UMH 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 1.50 for AHH and 1.00 for UMH, which implies that analysts are more bullish on the outlook for AHH.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. AHH has a beta of 0.58 and UMH’s beta is 0.72. AHH’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AHH has a short ratio of 4.04 compared to a short interest of 1.32 for UMH. This implies that the market is currently less bearish on the outlook for UMH.
Armada Hoffler Properties, Inc. (NYSE:AHH) beats UMH Properties, Inc. (NYSE:UMH) on a total of 6 of the 11 factors compared between the two stocks. AHH generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, AHH is the cheaper of the two stocks on book value and sales basis, Finally, HASI has better sentiment signals based on short interest.