Choosing Between SRC Energy Inc. (SRCI) and National Storage Affiliates Trust (NSA)
SRC Energy Inc. (NYSE:SRCI) shares are down more than -4.89% this year and recently increased 4.93% or $0.21 to settle at $4.47. National Storage Affiliates Trust (NYSE:NSA), on the other hand, is up 19.88% year to date as of 08/08/2019. It currently trades at $31.72 and has returned 3.69% during the past week.
SRC Energy Inc. (NYSE:SRCI) and National Storage Affiliates Trust (NYSE:NSA) are the two most active stocks in the Industrial Metals & Minerals 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 SRCI to grow earnings at a 6.03% annual rate over the next 5 years. Comparatively, NSA is expected to grow at a 11.00% annual rate. All else equal, NSA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 31.73% for National Storage Affiliates Trust (NSA). SRCI’s ROI is 10.20% while NSA has a ROI of 5.00%. The interpretation is that SRCI’s business generates a higher return on investment than NSA’s.
Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, SRCI’s free cash flow was 0% while NSA converted 0% of its revenues into cash flow. This means that, for a given level of sales, SRCI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
SRCI’s debt-to-equity ratio is 0.42 versus a D/E of 1.96 for NSA. NSA is therefore the more solvent of the two companies, and has lower financial risk.
Valuation
SRCI trades at a forward P/E of 4.53, a P/B of 0.64, and a P/S of 1.55, compared to a forward P/E of 37.06, a P/B of 2.49, and a P/S of 5.25 for NSA. SRCI 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”. SRCI is currently priced at a -41.49% to its one-year price target of 7.64. Comparatively, NSA is 6.23% relative to its price target of 29.86. This suggests that SRCI 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. SRCI has a beta of 1.64 and NSA’s beta is 0.37. NSA’s shares are therefore the less volatile of the two stocks.
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. SRCI has a short ratio of 3.46 compared to a short interest of 2.45 for NSA. This implies that the market is currently less bearish on the outlook for NSA.
Summary
SRC Energy Inc. (NYSE:SRCI) beats National Storage Affiliates Trust (NYSE:NSA) on a total of 9 of the 14 factors compared between the two stocks. SRCI is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, SRCI is the cheaper of the two stocks on an earnings, book value and sales basis, SRCI is more undervalued relative to its price target.
Gloss