W&T Offshore, Inc. (NYSE:WTI) shares are up more than 30.21% this year and recently decreased -3.36% or -$0.15 to settle at $4.31. Tellurian Inc. (NASDAQ:TELL), on the other hand, is up 13.86% year to date as of 01/09/2018. It currently trades at $11.09 and has returned 10.68% during the past week.
W&T Offshore, Inc. (NYSE:WTI) and Tellurian Inc. (NASDAQ:TELL) are the two most active stocks in the Oil & Gas Drilling & Exploration 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.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. W&T Offshore, Inc. (WTI) has an EBITDA margin of 68.74%. This suggests that WTI underlying business is more profitable
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. WTI has a current ratio of 1.20 compared to 5.20 for TELL. This means that TELL can more easily cover its most immediate liabilities over the next twelve months.
WTI trades at a forward P/E of 11.14, and a P/S of 1.22, compared to a P/B of 13.05, for TELL. WTI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. WTI is currently priced at a 72.4% to its one-year price target of 2.50. Comparatively, TELL is -23.52% relative to its price target of 14.50. This suggests that TELL 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 3.30 for WTI and 1.70 for TELL, which implies that analysts are more bullish on the outlook for WTI.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. WTI has a beta of 2.54 and TELL’s beta is 0.86. TELL’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. WTI has a short ratio of 2.29 compared to a short interest of 5.87 for TELL. This implies that the market is currently less bearish on the outlook for WTI.
Tellurian Inc. (NASDAQ:TELL) beats W&T Offshore, Inc. (NYSE:WTI) on a total of 8 of the 13 factors compared between the two stocks. TELL is more profitable, higher liquidity and has lower financial risk. In terms of valuation, TELL is the cheaper of the two stocks on an earnings and sales basis, TELL is more undervalued relative to its price target. Finally, BBG has better sentiment signals based on short interest.