Physicians Realty Trust (NYSE:DOC) shares are up more than 7.74% this year and recently decreased -0.29% or -$0.05 to settle at $17.27. HDFC Bank Limited (NYSE:HDB), on the other hand, is up 1.48% year to date as of 09/12/2019. It currently trades at $104.92 and has returned 1.30% during the past week.
Physicians Realty Trust (NYSE:DOC) and HDFC Bank Limited (NYSE:HDB) are the two most active stocks in the REIT – Healthcare Facilities 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect DOC to grow earnings at a 9.70% annual rate over the next 5 years. Comparatively, HDB is expected to grow at a 23.80% annual rate. All else equal, HDB’s higher growth rate would imply a greater potential for capital appreciation.
Growth doesn’t mean much if it comes at the cost of weak profitability. 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 148.89% for HDFC Bank Limited (HDB).Cash Flow
The value of a stock is simply the present value of its future free cash flows. DOC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, HDB’s free cash flow per share was -. On a percent-of-sales basis, DOC’s free cash flow was 0% while HDB converted 0% of its revenues into cash flow. This means that, for a given level of sales, DOC is able to generate more free cash flow for investors.
DOC trades at a forward P/E of 60.81, a P/B of 1.36, and a P/S of 7.79, compared to a forward P/E of 21.86, a P/B of 33.98, for HDB. DOC is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. DOC is currently priced at a -8.09% to its one-year price target of 18.79. Comparatively, HDB is -21.83% relative to its price target of 134.22. This suggests that HDB is the better investment over the next year.
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. DOC has a short ratio of 5.22 compared to a short interest of 2.48 for HDB. This implies that the market is currently less bearish on the outlook for HDB.
HDFC Bank Limited (NYSE:HDB) beats Physicians Realty Trust (NYSE:DOC) on a total of 9 of the 14 factors compared between the two stocks. HDB generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, HDB is the cheaper of the two stocks on an earnings and sales basis, HDB is more undervalued relative to its price target. Finally, HDB has better sentiment signals based on short interest.