Gafisa SA (NYSE: GFA) and Transcontinental Realty Investors (NYSE:TCI) are both small-cap construction companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, risk, valuation, institutional ownership, profitability, dividends and analyst recommendations.

Insider & Institutional Ownership

5.0% of Gafisa SA shares are owned by institutional investors. Comparatively, 0.3% of Transcontinental Realty Investors shares are owned by institutional investors. 81.0% of Transcontinental Realty Investors shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Gafisa SA and Transcontinental Realty Investors’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gafisa SA -84.96% -17.04% -7.10%
Transcontinental Realty Investors -1.29% -0.70% -0.13%

Analyst Ratings

This is a breakdown of recent recommendations for Gafisa SA and Transcontinental Realty Investors, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gafisa SA 1 0 0 0 1.00
Transcontinental Realty Investors 0 3 0 0 2.00

Transcontinental Realty Investors has a consensus target price of $20.33, indicating a potential downside of 2.01%. Given Transcontinental Realty Investors’ stronger consensus rating and higher probable upside, analysts plainly believe Transcontinental Realty Investors is more favorable than Gafisa SA.

Risk and Volatility

Gafisa SA has a beta of 2.02, indicating that its stock price is 102% more volatile than the S&P 500. Comparatively, Transcontinental Realty Investors has a beta of -0.17, indicating that its stock price is 117% less volatile than the S&P 500.

Earnings and Valuation

This table compares Gafisa SA and Transcontinental Realty Investors’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Gafisa SA $281.75 million 0.39 -$67.03 million ($25.65) -0.31
Transcontinental Realty Investors $121.07 million 1.49 $43.45 million ($0.28) -74.10

Transcontinental Realty Investors has higher revenue, but lower earnings than Gafisa SA. Transcontinental Realty Investors is trading at a lower price-to-earnings ratio than Gafisa SA, indicating that it is currently the more affordable of the two stocks.

Summary

Transcontinental Realty Investors beats Gafisa SA on 9 of the 12 factors compared between the two stocks.

About Gafisa SA

Gafisa S.A. is a diversified national homebuilder. The Company’s segments are Gafisa (for ventures targeted at high and medium income) and Tenda (for ventures targeted at low income). The Company’s brands include Tenda, which serves the affordable entry-level housing segments, Gafisa, which offers a range of residential options to the mid to higher income segments and Alphaville (equity method investment), which focuses on the identification, development and sale of residential communities. In addition, it provides construction services to third parties on certain developments in the Gafisa segment where it retains an equity interest. Its real estate business activities include developments for sale of residential units, land subdivisions and commercial buildings; construction services, and sale of units through its brokerage subsidiaries, Gafisa Vendas Intermediacao Imobiliaria Ltda and Gafisa Vendas in Rio de Janeiro, jointly referred to as Gafisa Vendas.

About Transcontinental Realty Investors

Transcontinental Realty Investors, Inc. is an externally advised and managed real estate investment company that owns a portfolio of income-producing properties and land held for development. The Company’s segments are Commercial Properties, Apartments, Land and Other. Its portfolio of income-producing properties includes residential apartment communities, office buildings and other commercial properties. It acquires land mainly in in-fill locations or suburban markets. The Company’s income-producing properties consist of approximately eight commercial properties, including five office buildings, two retail properties and an industrial warehouse, comprising in aggregate approximately 1.9 million square feet; a golf course comprising approximately 96.09 acres, and approximately 50 residential apartment communities comprising over 7,980 units, excluding apartments being developed. In addition, it owns approximately 3,660 acres of land held for development.

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