Toll Brothers, Inc. (NYSE:TOL) shares are up more than 18.95% this year and recently decreased -1.51% or -$0.6 to settle at $39.17. Anaplan, Inc. (NYSE:PLAN), on the other hand, is up 76.04% year to date as of 11/07/2019. It currently trades at $46.72 and has returned -1.02% during the past week.
Toll Brothers, Inc. (NYSE:TOL) and Anaplan, Inc. (NYSE:PLAN) are the two most active stocks in the Residential Construction industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 TOL to grow earnings at a -1.88% annual rate over the next 5 years.
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. Toll Brothers, Inc. (TOL) has an EBITDA margin of 13.27%. This suggests that TOL underlying business is more profitable TOL’s ROI is 6.70% while PLAN has a ROI of -42.10%. The interpretation is that TOL’s business generates a higher return on investment than PLAN’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. TOL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.52. Comparatively, PLAN’s free cash flow per share was +0.05. On a percent-of-sales basis, TOL’s free cash flow was 1.02% while PLAN converted 0% of its revenues into cash flow. This means that, for a given level of sales, TOL is able to generate more free cash flow for investors.
TOL’s debt-to-equity ratio is 0.76 versus a D/E of 0.04 for PLAN. TOL is therefore the more solvent of the two companies, and has lower financial risk.
TOL trades at a forward P/E of 9.61, a P/B of 1.15, and a P/S of 0.73, compared to a P/B of 19.88, and a P/S of 20.55 for PLAN. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. TOL is currently priced at a -0.53% to its one-year price target of 39.38. Comparatively, PLAN is -24.94% relative to its price target of 62.24. This suggests that PLAN 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. TOL has a short ratio of 4.43 compared to a short interest of 2.64 for PLAN. This implies that the market is currently less bearish on the outlook for PLAN.
Anaplan, Inc. (NYSE:PLAN) beats Toll Brothers, Inc. (NYSE:TOL) on a total of 8 of the 14 factors compared between the two stocks. PLAN is more profitable, higher liquidity and has lower financial risk. PLAN is more undervalued relative to its price target. Finally, PLAN has better sentiment signals based on short interest.