American Tower Corporation (NYSE:AMT) and STORE Capital Corporation (NYSE:STOR) 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.
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 AMT to grow earnings at a 22.75% annual rate over the next 5 years. Comparatively, STOR is expected to grow at a 5.87% annual rate. All else equal, AMT’s higher growth rate would imply a greater potential for capital appreciation.
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. American Tower Corporation (AMT) has an EBITDA margin of 46.72%, compared to an EBITDA margin of 90.75% for STORE Capital Corporation (STOR). This suggests that STOR underlying business is more profitable. AMT’s ROI is 6.70% while STOR has a ROI of 4.50%. The interpretation is that AMT’s business generates a higher return on investment than STOR’s.
Cash is king when it comes to investing. On a percent-of-sales basis, AMT’s free cash flow was 0% while STOR converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, STOR 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. AMT’s debt-to-equity ratio is 2.97 versus a D/E of 0.81 for STOR. AMT is therefore the more solvent of the two companies, and has lower financial risk.
AMT trades at a forward P/E of 37.71, a P/B of 9.18, and a P/S of 9.40, compared to a forward P/E of 28.71, a P/B of 1.39, and a P/S of 11.27 for STOR. AMT is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. AMT is currently priced at a -9.47% to its one-year price target of $153.81. Comparatively, STOR is -2.76% relative to its price target of $25.77. This suggests that AMT 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 1.70 for AMT and 2.10 for STOR, which implies that analysts are more bullish on the outlook for STOR.
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. AMT has a beta of 0.72.
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. AMT has a short ratio of 2.56 compared to a short interest of 6.49 for STOR. This implies that the market is currently less bearish on the outlook for AMT.
STORE Capital Corporation (NYSE:STOR) beats American Tower Corporation (NYSE:AMT) on a total of 6 of the 12 factors compared between the two stocks. STOR is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, STOR is the cheaper of the two stocks on an earnings and book value, Finally, SRC has better sentiment signals based on short interest.