PS Business Parks (NYSE:PSB) and Redwood Trust (NYSE:RWT) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their valuation, analyst recommendations, earnings, risk, dividends, profitability and institutional ownership.
This table compares PS Business Parks and Redwood Trust’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|PS Business Parks||45.25%||18.36%||9.17%|
PS Business Parks has a beta of 0.47, meaning that its stock price is 53% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.02, meaning that its stock price is 2% more volatile than the S&P 500.
Insider and Institutional Ownership
69.9% of PS Business Parks shares are owned by institutional investors. Comparatively, 76.7% of Redwood Trust shares are owned by institutional investors. 1.4% of PS Business Parks shares are owned by insiders. Comparatively, 1.5% of Redwood Trust shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.
PS Business Parks pays an annual dividend of $4.20 per share and has a dividend yield of 2.9%. Redwood Trust pays an annual dividend of $0.56 per share and has a dividend yield of 5.8%. PS Business Parks pays out 61.9% of its earnings in the form of a dividend. Redwood Trust pays out 35.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Redwood Trust is clearly the better dividend stock, given its higher yield and lower payout ratio.
Earnings & Valuation
This table compares PS Business Parks and Redwood Trust’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|PS Business Parks||$429.85 million||9.17||$174.97 million||$6.78||21.15|
|Redwood Trust||$622.00 million||1.74||$169.18 million||$1.58||6.13|
PS Business Parks has higher earnings, but lower revenue than Redwood Trust. Redwood Trust is trading at a lower price-to-earnings ratio than PS Business Parks, indicating that it is currently the more affordable of the two stocks.
This is a summary of current recommendations and price targets for PS Business Parks and Redwood Trust, as provided by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|PS Business Parks||2||1||0||0||1.33|
PS Business Parks presently has a consensus price target of $133.67, indicating a potential downside of 6.78%. Redwood Trust has a consensus price target of $10.36, indicating a potential upside of 7.00%. Given Redwood Trust’s stronger consensus rating and higher probable upside, analysts plainly believe Redwood Trust is more favorable than PS Business Parks.
Redwood Trust beats PS Business Parks on 10 of the 17 factors compared between the two stocks.
About PS Business Parks
PS Business Parks, Inc., a member of the S&P MidCap 400, is a REIT that acquires, develops, owns, and operates commercial properties, primarily multi-tenant industrial, flex, and office space. As of September 30, 2020, the Company wholly owned 27.5 million rentable square feet with approximately 5,000 commercial customers in six states. The Company also held a 95.0% interest in a 395-unit apartment complex and a 98.2% interest in a development of a 411-unit multifamily apartment complex.
About Redwood Trust
Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through four segments: Residential Lending, Business Purpose Lending, Multifamily Investments, and Third-Party Residential Investments. The Residential Lending segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also includes derivative financial instruments to manage risks associated with residential loans. The Business Purpose Lending segment operates a platform that originates and acquires business purpose residential loans for subsequent securitization or transfer into its investment portfolio. The Multifamily Investments segment invests in securities collateralized by multifamily mortgage loans, as well as in multifamily mortgages and related assets. The Third-Party Residential Investments segment invests in residential mortgage-backed securities issued by third parties, as well as in Freddie Mac SLST securitizations; and offers servicer advance and other residential credit investment services. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Redwood Trust, Inc. was founded in 1994 and is headquartered in Mill Valley, California.
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