Fifth Third Bancorp (NASDAQ:FITB) shares are up more than 19.12% this year and recently increased 0.86% or $0.24 to settle at $28.03. Innovative Industrial Properties, Inc. (NYSE:IIPR), on the other hand, is up 94.73% year to date as of 09/12/2019. It currently trades at $88.39 and has returned 0.16% during the past week.
Fifth Third Bancorp (NASDAQ:FITB) and Innovative Industrial Properties, Inc. (NYSE:IIPR) are the two most active stocks in the Regional – Midwest Banks 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FITB to grow earnings at a 13.11% annual rate over the next 5 years.
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 74.44% for Innovative Industrial Properties, Inc. (IIPR). FITB’s ROI is 11.40% while IIPR has a ROI of 2.10%. The interpretation is that FITB’s business generates a higher return on investment than IIPR’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. FITB’s free cash flow (“FCF”) per share for the trailing twelve months was +0.61. Comparatively, IIPR’s free cash flow per share was -0.95. On a percent-of-sales basis, FITB’s free cash flow was 5.59% while IIPR converted -0.07% of its revenues into cash flow. This means that, for a given level of sales, FITB is able to generate more free cash flow for investors.
FITB’s debt-to-equity ratio is 0.82 versus a D/E of 0.53 for IIPR. FITB is therefore the more solvent of the two companies, and has lower financial risk.
FITB trades at a forward P/E of 9.27, a P/B of 1.08, and a P/S of 3.54, compared to a forward P/E of 29.61, a P/B of 3.39, and a P/S of 43.94 for IIPR. FITB 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”. FITB is currently priced at a -10.65% to its one-year price target of 31.37. Comparatively, IIPR is -46.1% relative to its price target of 164.00. This suggests that IIPR is the better investment over the next year.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. FITB has a short ratio of 2.77 compared to a short interest of 4.39 for IIPR. This implies that the market is currently less bearish on the outlook for FITB.
Fifth Third Bancorp (NASDAQ:FITB) beats Innovative Industrial Properties, Inc. (NYSE:IIPR) on a total of 9 of the 14 factors compared between the two stocks. FITB is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, FITB is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, FITB has better sentiment signals based on short interest.