Critical Comparison: VEREIT, Inc. (VER) vs. Naked Brand Group Limited (NAKD)

Naked Brand Group Limited (NASDAQ:NAKD), on the other hand, is down -95.16% year to date as of 11/07/2019. It currently trades at $0.04 and has returned 4.41% during the past week.

VEREIT, Inc. (NYSE:VER) and Naked Brand Group Limited (NASDAQ:NAKD) are the two most active stocks in the REIT – Diversified 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 VER to grow earnings at a 5.00% annual rate over the next 5 years.

Profitability and Returns

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. VEREIT, Inc. (VER) has an EBITDA margin of 80.88%. This suggests that VER underlying business is more profitable VER’s ROI is 0.60% while NAKD has a ROI of -157.00%. The interpretation is that VER’s business generates a higher return on investment than NAKD’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. VER’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, NAKD’s free cash flow per share was -. On a percent-of-sales basis, VER’s free cash flow was -0.78% while NAKD converted 0% of its revenues into cash flow. This means that, for a given level of sales, NAKD is able to generate more free cash flow for investors.

Liquidity and Financial Risk

VER’s debt-to-equity ratio is 0.78 versus a D/E of 2.00 for NAKD. NAKD is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VER trades at a forward P/E of 42.55, a P/B of 1.26, and a P/S of 7.97, compared to a P/B of 0.58, and a P/S of 0.10 for NAKD. VER is the expensive 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. VER is currently priced at a -9.13% to its one-year price target of 10.30.

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. VER has a short ratio of 2.10 compared to a short interest of 0.00 for NAKD. This implies that the market is currently less bearish on the outlook for NAKD.

Summary

Naked Brand Group Limited (NASDAQ:NAKD) beats VEREIT, Inc. (NYSE:VER) on a total of 9 of the 13 factors compared between the two stocks. NAKD is growing fastly, has a higher cash conversion rate and higher liquidity. In terms of valuation, NAKD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, NAKD has better sentiment signals based on short interest.