National Oilwell Varco, Inc. (NYSE:NOV) shares are down more than -6.41% this year and recently increased 1.87% or $0.62 to settle at $33.71. Superior Energy Services, Inc. (NYSE:SPN), on the other hand, is down -11.73% year to date as of 02/12/2018. It currently trades at $8.50 and has returned -14.05% during the past week.
National Oilwell Varco, Inc. (NYSE:NOV) and Superior Energy Services, Inc. (NYSE:SPN) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NOV to grow earnings at a 47.00% 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 Return on Investment (ROI) to measure this. NOV’s ROI is -12.80% while SPN has a ROI of -29.50%. The interpretation is that NOV’s business generates a higher return on investment than SPN’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, NOV’s free cash flow was 0% while SPN converted -1.06% of its revenues into cash flow. This means that, for a given level of sales, NOV is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. NOV has a current ratio of 2.80 compared to 2.00 for SPN. This means that NOV can more easily cover its most immediate liabilities over the next twelve months. NOV’s debt-to-equity ratio is 0.23 versus a D/E of 0.00 for SPN. NOV is therefore the more solvent of the two companies, and has lower financial risk.
NOV trades at a forward P/E of 30.67, a P/B of 0.90, and a P/S of 1.73, compared to a P/B of 1.17, and a P/S of 0.77 for SPN. NOV 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
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. NOV is currently priced at a -7.39% to its one-year price target of 36.40. Comparatively, SPN is -28.45% relative to its price target of 11.88. This suggests that SPN 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 2.90 for NOV and 2.40 for SPN, which implies that analysts are more bullish on the outlook for NOV.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NOV has a beta of 0.93 and SPN’s beta is 2.01. NOV’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.NOV has a short ratio of 9.26 compared to a short interest of 3.78 for SPN. This implies that the market is currently less bearish on the outlook for SPN.
National Oilwell Varco, Inc. (NYSE:NOV) beats Superior Energy Services, Inc. (NYSE:SPN) on a total of 7 of the 14 factors compared between the two stocks. NOV is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity.