Global

CBRE Group, Inc. (CBRE) vs. Rio Tinto plc (RIO): Breaking Down the Two Hottest Stocks

CBRE Group, Inc. (NYSE:CBRE) shares are down more than -7.62% this year and recently decreased -2.89% or -$1.19 to settle at $40.01. Rio Tinto plc (NYSE:RIO), on the other hand, is down -7.94% year to date as of 10/10/2018. It currently trades at $48.73 and has returned -5.01% during the past week.

CBRE Group, Inc. (NYSE:CBRE) and Rio Tinto plc (NYSE:RIO) are the two most active stocks in the Property Management industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

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 CBRE to grow earnings at a 12.80% annual rate over the next 5 years. Comparatively, RIO is expected to grow at a -6.20% annual rate. All else equal, CBRE’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 Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. CBRE’s ROI is 10.70% while RIO has a ROI of 17.30%. The interpretation is that RIO’s business generates a higher return on investment than CBRE’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. CBRE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.28. Comparatively, RIO’s free cash flow per share was -. On a percent-of-sales basis, CBRE’s free cash flow was 0.67% while RIO converted 0% of its revenues into cash flow. This means that, for a given level of sales, CBRE 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. CBRE has a current ratio of 1.10 compared to 1.50 for RIO. This means that RIO can more easily cover its most immediate liabilities over the next twelve months. CBRE’s debt-to-equity ratio is 0.86 versus a D/E of 0.31 for RIO. CBRE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CBRE trades at a forward P/E of 11.88, a P/B of 3.05, and a P/S of 0.79, compared to a forward P/E of 10.44, a P/B of 2.00, and a P/S of 2.15 for RIO. CBRE is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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”. CBRE is currently priced at a -24.11% to its one-year price target of 52.72. Comparatively, RIO is -21.35% relative to its price target of 61.96. This suggests that CBRE is the better investment over the next year.

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. CBRE has a beta of 1.84 and RIO’s beta is 1.14. RIO’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. CBRE has a short ratio of 3.81 compared to a short interest of 2.42 for RIO. This implies that the market is currently less bearish on the outlook for RIO.

Summary

Rio Tinto plc (NYSE:RIO) beats CBRE Group, Inc. (NYSE:CBRE) on a total of 8 of the 14 factors compared between the two stocks. RIO is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, RIO is the cheaper of the two stocks on an earnings and book value, Finally, RIO has better sentiment signals based on short interest.

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