Uniti Group Inc. (NASDAQ:UNIT) shares are down more than -36.01% this year and recently decreased -2.22% or -$0.37 to settle at $16.26. CubeSmart (NYSE:CUBE), on the other hand, is up 8.82% year to date as of 11/10/2017. It currently trades at $29.13 and has returned 2.21% during the past week.
Uniti Group Inc. (NASDAQ:UNIT) and CubeSmart (NYSE:CUBE) are the two most active stocks in the REIT – Industrial industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 UNIT to grow earnings at a 11.90% annual rate over the next 5 years. Comparatively, CUBE is expected to grow at a 6.00% annual rate. All else equal, UNIT’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., compared to an EBITDA margin of 32.51% for CubeSmart (CUBE). UNIT’s ROI is 10.30% while CUBE has a ROI of 4.40%. The interpretation is that UNIT’s business generates a higher return on investment than CUBE’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 -0.17. Comparatively, CUBE’s free cash flow per share was +0.13. On a percent-of-sales basis, UNIT’s free cash flow was -0% while CUBE converted 0% of its revenues into cash flow. This means that, for a given level of sales, UNIT is able to generate more free cash flow for investors.
UNIT trades at a forward P/E of 186.90, and a P/S of 3.29, compared to a forward P/E of 39.21, a P/B of 3.25, and a P/S of 9.57 for CUBE. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. UNIT is currently priced at a -29.03% to its one-year price target of 22.91. Comparatively, CUBE is 5.28% relative to its price target of 27.67. 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 2.20 for UNIT and 2.60 for CUBE, which implies that analysts are more bullish on the outlook for CUBE.
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 6.61 compared to a short interest of 9.02 for CUBE. This implies that the market is currently less bearish on the outlook for UNIT.
Uniti Group Inc. (NASDAQ:UNIT) beats CubeSmart (NYSE:CUBE) on a total of 11 of the 14 factors compared between the two stocks. UNIT is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, UNIT is the cheaper of the two stocks on book value and sales basis, UNIT is more undervalued relative to its price target. Finally, UNIT has better sentiment signals based on short interest.