Halcon Resources Corporation (NYSE:HK) shares are down more than -2.91% this year and recently increased 3.81% or $0.27 to settle at $7.35. Antero Resources Corporation (NYSE:AR), on the other hand, is down -8.11% year to date as of 02/12/2018. It currently trades at $17.46 and has returned -3.43% during the past week.
Halcon Resources Corporation (NYSE:HK) and Antero Resources Corporation (NYSE:AR) are the two most active stocks in the Oil & Gas Drilling & Exploration industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, AR is expected to grow at a 22.39% annual rate. All else equal, AR’s higher growth rate would imply a greater potential for capital appreciation.
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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. HK’s ROI is -25.10% while AR has a ROI of -4.50%. The interpretation is that AR’s business generates a higher return on investment than HK’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. HK’s free cash flow (“FCF”) per share for the trailing twelve months was -7.22. Comparatively, AR’s free cash flow per share was +2.67. On a percent-of-sales basis, HK’s free cash flow was -0.27% while AR converted 48.28% of its revenues into cash flow. This means that, for a given level of sales, AR 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. HK has a current ratio of 1.90 compared to 0.90 for AR. This means that HK can more easily cover its most immediate liabilities over the next twelve months. HK’s debt-to-equity ratio is 0.70 versus a D/E of 0.59 for AR. HK is therefore the more solvent of the two companies, and has lower financial risk.
HK trades at a forward P/E of 45.65, a P/B of 0.93, and a P/S of 2.24, compared to a forward P/E of 14.26, a P/B of 0.72, and a P/S of 2.04 for AR. HK is the expensive of the two stocks on an earnings, book value and sales basis. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. HK is currently priced at a -33.84% to its one-year price target of 11.11. Comparatively, AR is -32.61% relative to its price target of 25.91. This suggests that HK 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 1.90 for HK and 2.30 for AR, which implies that analysts are more bullish on the outlook for AR.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HK has a beta of 3.50 and AR’s beta is 0.99. AR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. HK has a short ratio of 3.75 compared to a short interest of 7.67 for AR. This implies that the market is currently less bearish on the outlook for HK.
Antero Resources Corporation (NYSE:AR) beats Halcon Resources Corporation (NYSE:HK) on a total of 9 of the 14 factors compared between the two stocks. AR higher liquidity, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, AR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, ANDX has better sentiment signals based on short interest.