Critical Comparison: Kite Realty Group Trust (KRG) vs. T. Rowe Price Group, Inc. (TROW)

Kite Realty Group Trust (NYSE:KRG) shares are up more than 37.69% this year and recently increased 0.26% or $0.05 to settle at $19.40. T. Rowe Price Group, Inc. (NASDAQ:TROW), on the other hand, is up 32.43% year to date as of 12/02/2019. It currently trades at $122.26 and has returned 1.02% during the past week.

Kite Realty Group Trust (NYSE:KRG) and T. Rowe Price Group, Inc. (NASDAQ:TROW) are the two most active stocks in the REIT – Retail industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, TROW is expected to grow at a 6.29% annual rate. All else equal, TROW’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 49.41% for T. Rowe Price Group, Inc. (TROW). KRG’s ROI is 0.70% while TROW has a ROI of 29.00%. The interpretation is that TROW’s business generates a higher return on investment than KRG’s.

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. KRG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, TROW’s free cash flow per share was +2.35. On a percent-of-sales basis, KRG’s free cash flow was -0% while TROW converted 10.22% of its revenues into cash flow. This means that, for a given level of sales, TROW is able to generate more free cash flow for investors.

Financial Risk

KRG’s debt-to-equity ratio is 0.92 versus a D/E of 0.00 for TROW. KRG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

KRG trades at a forward P/E of 2771.43, a P/B of 1.25, and a P/S of 4.99, compared to a forward P/E of 15.13, a P/B of 4.20, and a P/S of 5.24 for TROW. 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. KRG is currently priced at a 7.78% to its one-year price target of 18.00. Comparatively, TROW is 2.92% relative to its price target of 118.79. This suggests that TROW is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. KRG has a beta of 0.81 and TROW’s beta is 1.07. KRG’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. KRG has a short ratio of 5.76 compared to a short interest of 5.67 for TROW. This implies that the market is currently less bearish on the outlook for TROW.

Summary

T. Rowe Price Group, Inc. (NASDAQ:TROW) beats Kite Realty Group Trust (NYSE:KRG) on a total of 10 of the 14 factors compared between the two stocks. TROW higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. TROW is more undervalued relative to its price target. Finally, TROW has better sentiment signals based on short interest.