Industrial Logistics Properties Trust (NASDAQ:ILPT) shares are up more than 10.22% this year and recently decreased -1.32% or -$0.29 to settle at $21.68. RingCentral, Inc. (NYSE:RNG), on the other hand, is up 101.56% year to date as of 12/06/2019. It currently trades at $166.17 and has returned -3.65% during the past week.
Industrial Logistics Properties Trust (NASDAQ:ILPT) and RingCentral, Inc. (NYSE:RNG) are the two most active stocks in the REIT – Industrial 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.
Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ILPT to grow earnings at a -8.70% annual rate over the next 5 years. Comparatively, RNG is expected to grow at a 14.00% annual rate. All else equal, RNG’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. EBITDA margin of 7.51% for RingCentral, Inc. (RNG). ILPT’s ROI is 6.10% while RNG has a ROI of -2.40%. The interpretation is that ILPT’s business generates a higher return on investment than RNG’s.
Cash Flow
The value of a stock is simply the present value of its future free cash flows. ILPT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, RNG’s free cash flow per share was +0.20. On a percent-of-sales basis, ILPT’s free cash flow was -0% while RNG converted 0% of its revenues into cash flow. This means that, for a given level of sales, ILPT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
ILPT’s debt-to-equity ratio is 1.39 versus a D/E of 0.00 for RNG. ILPT is therefore the more solvent of the two companies, and has lower financial risk.
Valuation
ILPT trades at a forward P/E of 11.72, a P/B of 1.40, and a P/S of 6.85, compared to a forward P/E of 178.49, a P/B of 37.43, and a P/S of 16.50 for RNG. ILPT 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”. ILPT is currently priced at a -9.67% to its one-year price target of 24.00. Comparatively, RNG is -13.9% relative to its price target of 193.00. This suggests that RNG is the better investment over the next year.
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. ILPT has a short ratio of 3.83 compared to a short interest of 4.60 for RNG. This implies that the market is currently less bearish on the outlook for ILPT.
Summary
RingCentral, Inc. (NYSE:RNG) beats Industrial Logistics Properties Trust (NASDAQ:ILPT) on a total of 7 of the 14 factors compared between the two stocks. RNG generates a higher return on investment, is more profitable, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, ILPT is the cheaper of the two stocks on an earnings, book value and sales basis, RNG is more undervalued relative to its price target.
