New York REIT, Inc. (NYSE:NYRT) shares are down more than -30.34% this year and recently increased 1.73% or $0.12 to settle at $7.05. Mack-Cali Realty Corporation (NYSE:CLI), on the other hand, is down -21.43% year to date as of 11/10/2017. It currently trades at $22.80 and has returned -1.38% during the past week.
New York REIT, Inc. (NYSE:NYRT) and Mack-Cali Realty Corporation (NYSE:CLI) are the two most active stocks in the REIT – Office 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, CLI is expected to grow at a -4.73% annual rate. All else equal, NYRT’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 55.6% for Mack-Cali Realty Corporation (CLI). NYRT’s ROI is -2.60% while CLI has a ROI of 1.90%. The interpretation is that CLI’s business generates a higher return on investment than NYRT’s.
The value of a stock is simply the present value of its future free cash flows. NYRT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, CLI’s free cash flow per share was +0.16. On a percent-of-sales basis, NYRT’s free cash flow was -0.01% while CLI converted 0% of its revenues into cash flow. This means that, for a given level of sales, CLI is able to generate more free cash flow for investors.
NYRT’s debt-to-equity ratio is 0.00 versus a D/E of 2.01 for CLI. CLI is therefore the more solvent of the two companies, and has lower financial risk.
NYRT trades at a P/B of 1.26, and a P/S of 6.69, compared to a P/B of 1.40, and a P/S of 3.19 for CLI. NYRT 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. NYRT is currently priced at a -22.27% to its one-year price target of 9.07. Comparatively, CLI is -13.14% relative to its price target of 26.25. This suggests that NYRT 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 2.00 for NYRT and 3.10 for CLI, which implies that analysts are more bullish on the outlook for CLI.
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. NYRT has a beta of 0.75 and CLI’s beta is 1.19. NYRT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. NYRT has a short ratio of 0.92 compared to a short interest of 2.72 for CLI. This implies that the market is currently less bearish on the outlook for NYRT.
New York REIT, Inc. (NYSE:NYRT) beats Mack-Cali Realty Corporation (NYSE:CLI) on a total of 8 of the 14 factors compared between the two stocks. NYRT is growing fastly, higher liquidity and has lower financial risk. NYRT is more undervalued relative to its price target. Finally, NYRT has better sentiment signals based on short interest.