Crown Castle International Corp. (REIT) (NYSE:CCI) shares are up more than 25.40% this year and recently increased 0.57% or $0.62 to settle at $109.43. ORBCOMM Inc. (NASDAQ:ORBC), on the other hand, is up 27.33% year to date as of 12/05/2017. It currently trades at $10.30 and has returned 1.25% during the past week.
Crown Castle International Corp. (REIT) (NYSE:CCI) and ORBCOMM Inc. (NASDAQ:ORBC) are the two most active stocks in the Diversified Communication Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 CCI to grow earnings at a 16.34% annual rate over the next 5 years. Comparatively, ORBC is expected to grow at a 20.00% annual rate. All else equal, ORBC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 3.65% for ORBCOMM Inc. (ORBC). CCI’s ROI is 4.50% while ORBC has a ROI of -3.50%. The interpretation is that CCI’s business generates a higher return on investment than ORBC’s.
Cash is king when it comes to investing. CCI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.48. Comparatively, ORBC’s free cash flow per share was -0.16. On a percent-of-sales basis, CCI’s free cash flow was -4.97% while ORBC converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, ORBC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. CCI has a current ratio of 7.10 compared to 2.80 for ORBC. This means that CCI can more easily cover its most immediate liabilities over the next twelve months. CCI’s debt-to-equity ratio is 1.20 versus a D/E of 0.99 for ORBC. CCI is therefore the more solvent of the two companies, and has lower financial risk.
CCI trades at a forward P/E of 90.00, a P/B of 3.40, and a P/S of 10.64, compared to a P/B of 3.12, and a P/S of 3.39 for ORBC. CCI is the expensive of the two stocks on an earnings, book value and sales basis. 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. CCI is currently priced at a -4.38% to its one-year price target of 114.44. Comparatively, ORBC is -24.1% relative to its price target of 13.57. This suggests that ORBC 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 CCI and 1.60 for ORBC, which implies that analysts are more bullish on the outlook for CCI.
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. CCI has a beta of 0.24 and ORBC’s beta is 0.84. CCI’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. CCI has a short ratio of 4.44 compared to a short interest of 5.67 for ORBC. This implies that the market is currently less bearish on the outlook for CCI.
ORBCOMM Inc. (NASDAQ:ORBC) beats Crown Castle International Corp. (REIT) (NYSE:CCI) on a total of 9 of the 14 factors compared between the two stocks. ORBC is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, ORBC is the cheaper of the two stocks on an earnings, book value and sales basis, ORBC is more undervalued relative to its price target. Finally, DVMT has better sentiment signals based on short interest.