Washington Prime Group Inc. (NYSE:WPG) and CBRE Group, Inc. (NYSE:CBG) are the two most active stocks in the Property Management 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.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Washington Prime Group Inc. (WPG) has an EBITDA margin of 74.78%, compared to an EBITDA margin of 10.09% for CBRE Group, Inc. (CBG). This suggests that WPG underlying business is more profitable. WPG’s ROI is 4.90% while CBG has a ROI of 7.60%. The interpretation is that CBG’s business generates a higher return on investment than WPG’s.
If there’s one thing investors care more about than earnings, it’s cash flow. WPG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, CBG’s free cash flow per share was +0.50. On a percent-of-sales basis, WPG’s free cash flow was -0% while CBG converted 1.29% of its revenues into cash flow. This means that, for a given level of sales, CBG is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. WPG’s debt-to-equity ratio is 3.17 versus a D/E of 1.02 for CBG. WPG is therefore the more solvent of the two companies, and has lower financial risk.
WPG trades at a forward P/E of 44.26, a P/B of 1.66, and a P/S of 1.94, compared to a forward P/E of 14.46, a P/B of 3.69, and a P/S of 0.98 for CBG. WPG is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
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. WPG is currently priced at a -3.89% to its one-year price target of $8.75. Comparatively, CBG is -4.72% relative to its price target of $40.67. This suggests that CBG 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 3.30 for WPG and 1.90 for CBG, which implies that analysts are more bullish on the outlook for WPG.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. WPG has a beta of 0.98 and CBG’s beta is 1.82. WPG’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. WPG has a short ratio of 7.45 compared to a short interest of 5.75 for CBG. This implies that the market is currently less bearish on the outlook for CBG.
CBRE Group, Inc. (NYSE:CBG) beats Washington Prime Group Inc. (NYSE:WPG) on a total of 9 of the 12 factors compared between the two stocks. CBG is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CBG is the cheaper of the two stocks on an earnings and sales basis, CBG is more undervalued relative to its price target. Finally, CBG has better sentiment signals based on short interest.