Gulfport Energy Corporation (NASDAQ:GPOR) shares are down more than -36.83% this year and recently increased 0.74% or $0.1 to settle at $13.67. Murphy Oil Corporation (NYSE:MUR), on the other hand, is down -18.34% year to date as of 10/24/2017. It currently trades at $25.42 and has returned -1.97% during the past week.
Gulfport Energy Corporation (NASDAQ:GPOR) and Murphy Oil Corporation (NYSE:MUR) are the two most active stocks in the Independent Oil & Gas 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect GPOR to grow earnings at a 30.00% annual rate over the next 5 years.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 70.08% for Murphy Oil Corporation (MUR). GPOR’s ROI is -23.50% while MUR has a ROI of -1.10%. The interpretation is that MUR’s business generates a higher return on investment than GPOR’s.
The value of a stock is simply the present value of its future free cash flows. GPOR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.76. Comparatively, MUR’s free cash flow per share was +0.13. On a percent-of-sales basis, GPOR’s free cash flow was -0.04% while MUR converted 1.2% of its revenues into cash flow. This means that, for a given level of sales, MUR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. GPOR has a current ratio of 0.60 compared to 1.10 for MUR. This means that MUR can more easily cover its most immediate liabilities over the next twelve months. GPOR’s debt-to-equity ratio is 0.62 versus a D/E of 0.59 for MUR. GPOR is therefore the more solvent of the two companies, and has lower financial risk.
GPOR trades at a forward P/E of 9.25, a P/B of 0.86, and a P/S of 2.70, compared to a forward P/E of 160.89, a P/B of 0.88, and a P/S of 2.22 for MUR. 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. GPOR is currently priced at a -31.79% to its one-year price target of 20.04. Comparatively, MUR is -6.1% relative to its price target of 27.07. This suggests that GPOR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for GPOR and 3.00 for MUR, which implies that analysts are more bullish on the outlook for MUR.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. GPOR has a beta of 0.70 and MUR’s beta is 2.30. GPOR’s shares are therefore the less volatile of the two stocks.
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. GPOR has a short ratio of 1.86 compared to a short interest of 10.10 for MUR. This implies that the market is currently less bearish on the outlook for GPOR.
Murphy Oil Corporation (NYSE:MUR) beats Gulfport Energy Corporation (NASDAQ:GPOR) on a total of 7 of the 14 factors compared between the two stocks. MUR is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, LPI has better sentiment signals based on short interest.