Uniti Group Inc. (NASDAQ:UNIT) and Prologis, Inc. (NYSE:PLD) are the two most active stocks in the REIT – Industrial 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 UNIT to grow earnings at a 11.90% annual rate over the next 5 years. Comparatively, PLD is expected to grow at a 10.60% annual rate. All else equal, UNIT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Uniti Group Inc. (UNIT) has an EBITDA margin of 76.95%, compared to an EBITDA margin of 93.29% for Prologis, Inc. (PLD). This suggests that PLD underlying business is more profitable. UNIT’s ROI is 10.30% while PLD has a ROI of 2.40%. The interpretation is that UNIT’s business generates a higher return on investment than PLD’s.
If there’s one thing investors care more about than earnings, it’s cash flow. UNIT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.34. Comparatively, PLD’s free cash flow per share was +0.17. On a percent-of-sales basis, UNIT’s free cash flow was -0.01% while PLD converted 3.57% of its revenues into cash flow. This means that, for a given level of sales, PLD is able to generate more free cash flow for investors.
UNIT trades at a forward P/E of 243.11, and a P/S of 3.39, compared to a forward P/E of 41.31, a P/B of 2.32, and a P/S of 12.64 for PLD. UNIT 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
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. UNIT is currently priced at a -40.31% to its one-year price target of $26.89. Comparatively, PLD is 317.66% relative to its price target of $15.46. This suggests that UNIT 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 2.10 for UNIT and 2.90 for PLD, which implies that analysts are more bullish on the outlook for PLD.
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. PLD’s beta is 0.96.
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. UNIT has a short ratio of 4.09 compared to a short interest of 3.90 for PLD. This implies that the market is currently less bearish on the outlook for PLD.
Prologis, Inc. (NYSE:PLD) beats Uniti Group Inc. (NASDAQ:UNIT) on a total of 5 of the 10 factors compared between the two stocks. PLD is growing fastly, has higher cash flow per share and has a higher cash conversion rate. Finally, PLD has better sentiment signals based on short interest.