At Home Group Inc. (NYSE:HOME) shares are down more than -54.02% this year and recently increased 0.12% or $0.01 to settle at $8.58. Seaspan Corporation (NYSE:SSW), on the other hand, is up 50.06% year to date as of 11/29/2019. It currently trades at $11.75 and has returned 3.43% during the past week.
At Home Group Inc. (NYSE:HOME) and Seaspan Corporation (NYSE:SSW) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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. Analysts expect HOME to grow earnings at a 14.60% annual rate over the next 5 years. Comparatively, SSW is expected to grow at a -11.55% annual rate. All else equal, HOME’s higher growth rate would imply a greater potential for capital appreciation.
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. At Home Group Inc. (HOME) has an EBITDA margin of 13.84%. This suggests that HOME underlying business is more profitable HOME’s ROI is 5.80% while SSW has a ROI of 7.20%. The interpretation is that SSW’s business generates a higher return on investment than HOME’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. HOME’s free cash flow (“FCF”) per share for the trailing twelve months was -0.78. Comparatively, SSW’s free cash flow per share was +0.58. On a percent-of-sales basis, HOME’s free cash flow was -4.29% while SSW converted 11.42% of its revenues into cash flow. This means that, for a given level of sales, SSW is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. HOME has a current ratio of 0.80 compared to 0.40 for SSW. This means that HOME can more easily cover its most immediate liabilities over the next twelve months. HOME’s debt-to-equity ratio is 0.74 versus a D/E of 1.06 for SSW. SSW is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HOME trades at a forward P/E of 10.93, a P/B of 0.65, and a P/S of 0.43, compared to a forward P/E of 12.57, a P/B of 0.79, and a P/S of 2.23 for SSW. HOME is the cheaper 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
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”. HOME is currently priced at a 2.75% to its one-year price target of 8.35. Comparatively, SSW is 7.9% relative to its price target of 10.89. This suggests that HOME is the better investment over the next year.
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. HOME has a short ratio of 3.90 compared to a short interest of 10.55 for SSW. This implies that the market is currently less bearish on the outlook for HOME.
At Home Group Inc. (NYSE:HOME) beats Seaspan Corporation (NYSE:SSW) on a total of 11 of the 14 factors compared between the two stocks. HOME is growing fastly, is more profitable, higher liquidity and has lower financial risk. In terms of valuation, HOME is the cheaper of the two stocks on an earnings, book value and sales basis, HOME is more undervalued relative to its price target. Finally, HOME has better sentiment signals based on short interest.