Washington Prime Group Inc. (NYSE:WPG) shares are down more than -30.84% this year and recently decreased -2.04% or -$0.15 to settle at $7.20. Kennedy-Wilson Holdings, Inc. (NYSE:KW), on the other hand, is down -7.80% year to date as of 11/13/2017. It currently trades at $18.90 and has returned -1.31% during the past week.
Washington Prime Group Inc. (NYSE:WPG) and Kennedy-Wilson Holdings, Inc. (NYSE:KW) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, KW is expected to grow at a 25.00% annual rate. All else equal, KW’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 42.3% for Kennedy-Wilson Holdings, Inc. (KW). WPG’s ROI is 4.90% while KW has a ROI of 2.20%. The interpretation is that WPG’s business generates a higher return on investment than KW’s.
The value of a stock is simply the present value of its future free cash flows. WPG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, KW’s free cash flow per share was +0.56. On a percent-of-sales basis, WPG’s free cash flow was -0% while KW converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, KW is able to generate more free cash flow for investors.
WPG’s debt-to-equity ratio is 3.37 versus a D/E of 5.55 for KW. KW is therefore the more solvent of the two companies, and has lower financial risk.
WPG trades at a forward P/E of 37.89, a P/B of 1.52, and a P/S of 1.71, compared to a P/B of 2.09, and a P/S of 3.54 for KW. 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. WPG is currently priced at a -14.49% to its one-year price target of 8.42. Comparatively, KW is -34.08% relative to its price target of 28.67. This suggests that KW 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 2.30 for KW, which implies that analysts are more bullish on the outlook for WPG.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. WPG has a beta of 0.95 and KW’s beta is 1.40. WPG’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. WPG has a short ratio of 8.28 compared to a short interest of 10.90 for KW. This implies that the market is currently less bearish on the outlook for WPG.
Washington Prime Group Inc. (NYSE:WPG) beats Kennedy-Wilson Holdings, Inc. (NYSE:KW) on a total of 8 of the 14 factors compared between the two stocks. WPG is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, WPG is the cheaper of the two stocks on book value and sales basis, Finally, WPG has better sentiment signals based on short interest.