Helix Energy Solutions Group, Inc. (NYSE:HLX) shares are down more than -9.55% this year and recently increased 3.33% or $0.22 to settle at $6.82. C&J Energy Services, Inc. (NYSE:CJ), on the other hand, is down -24.17% year to date as of 02/12/2018. It currently trades at $25.38 and has returned -10.92% during the past week.
Helix Energy Solutions Group, Inc. (NYSE:HLX) and C&J Energy Services, Inc. (NYSE:CJ) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect HLX to grow earnings at a 43.00% annual rate over the next 5 years.
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. Helix Energy Solutions Group, Inc. (HLX) has an EBITDA margin of 9.03%. This suggests that HLX underlying business is more profitable HLX’s ROI is -2.80% while CJ has a ROI of 266.70%. The interpretation is that CJ’s business generates a higher return on investment than HLX’s.
Cash is king when it comes to investing. HLX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, CJ’s free cash flow per share was -0.68.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. HLX has a current ratio of 2.00 compared to 2.90 for CJ. This means that CJ can more easily cover its most immediate liabilities over the next twelve months. HLX’s debt-to-equity ratio is 0.33 versus a D/E of 0.00 for CJ. HLX is therefore the more solvent of the two companies, and has lower financial risk.
HLX trades at a forward P/E of 41.33, a P/B of 0.66, and a P/S of 1.86, compared to a forward P/E of 10.19, a P/B of 1.42, and a P/S of 1.18 for CJ. HLX 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. HLX is currently priced at a -28.81% to its one-year price target of 9.58. Comparatively, CJ is -37.27% relative to its price target of 40.46. This suggests that CJ 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 2.20 for HLX and 1.70 for CJ, which implies that analysts are more bullish on the outlook for HLX.
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.HLX has a short ratio of 2.46 compared to a short interest of 3.17 for CJ. This implies that the market is currently less bearish on the outlook for HLX.
C&J Energy Services, Inc. (NYSE:CJ) beats Helix Energy Solutions Group, Inc. (NYSE:HLX) on a total of 8 of the 13 factors compared between the two stocks. CJ is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, CJ is the cheaper of the two stocks on an earnings and sales basis, CJ is more undervalued relative to its price target. Finally, FRAC has better sentiment signals based on short interest.