Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) and Gramercy Property Trust, Inc. (NYSE:GPT) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect GLPI to grow earnings at a 2.53% annual rate over the next 5 years. Comparatively, GPT is expected to grow at a 7.00% annual rate. All else equal, GPT’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. Gaming and Leisure Properties, Inc. (GLPI) has an EBITDA margin of 76.34%, compared to an EBITDA margin of 60.41% for Gramercy Property Trust, Inc. (GPT). This suggests that GLPI underlying business is more profitable. GLPI’s ROI is 6.70% while GPT has a ROI of 1.80%. The interpretation is that GLPI’s business generates a higher return on investment than GPT’s.
Cash is king when it comes to investing. GLPI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.12. Comparatively, GPT’s free cash flow per share was -0.10. On a percent-of-sales basis, GLPI’s free cash flow was -0% while GPT converted -0% of its revenues into cash flow. This means that, for a given level of sales, GLPI 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. GLPI’s debt-to-equity ratio is 0.00 versus a D/E of 0.83 for GPT. GPT is therefore the more solvent of the two companies, and has lower financial risk.
GLPI trades at a forward P/E of 20.04, a P/B of 3.05, and a P/S of 8.04, compared to a forward P/E of 91.51, a P/B of 1.60, and a P/S of 9.51 for GPT. 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. GLPI is currently priced at a -5.54% to its one-year price target of $38.83. Comparatively, GPT is -61.69% relative to its price target of $80.73. This suggests that GPT 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 2.70 for GLPI and 1.50 for GPT, which implies that analysts are more bullish on the outlook for GLPI.
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. GLPI has a beta of 0.93 and GPT’s beta is 0.58. GPT’s shares are therefore the less volatile of the two stocks.
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. GLPI has a short ratio of 6.35 compared to a short interest of 6.80 for GPT. This implies that the market is currently less bearish on the outlook for GLPI.
Gramercy Property Trust, Inc. (NYSE:GPT) beats Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) on a total of 6 of the 13 factors compared between the two stocks. GPT is more profitable and has higher cash flow per share. GPT is more undervalued relative to its price target. Finally, SRC has better sentiment signals based on short interest.