The shares of Weatherford International plc have decreased by more than -31.41% this year alone. The shares recently went down by -1.04% or -$0.03 and now trades at $2.86. The shares of Southwestern Energy Company (NYSE:SWN), has slumped by -34.59% year to date as of 02/12/2018. The shares currently trade at $3.65 and have been able to report a change of -5.19% over the past one week.
The stock of Weatherford International plc and Southwestern Energy Company were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.
Next 5Y EPS Growth: 2.94% versus 9.00%
When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that WFT will grow it’s earning at a 2.94% annual rate in the next 5 years. This is in contrast to SWN which will have a positive growth at a 9.00% annual rate. This means that the higher growth rate of SWN implies a greater potential for capital appreciation over the years.
Profitability and Returns
Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of WFT is -28.60% while that of SWN is -39.80%. These figures suggest that WFT ventures generate a higher ROI than that of SWN.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, WFT’s free cash flow per share is a positive 0, while that of SWN is negative -5.78.
Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for WFT is 2.00 and that of SWN is 1.90. This implies that it is easier for WFT to cover its immediate obligations over the next 12 months than SWN. The debt ratio of WFT is 5.96 compared to 2.69 for SWN. WFT can be able to settle its long-term debts and thus is a lower financial risk than SWN.
WFT currently trades at a P/B of 2.13, and a P/S of 0.49 while SWN trades at a forward P/E of 4.69, a P/B of 1.10, and a P/S of 0.60. This means that looking at the earnings, book values and sales basis, WFT is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.
Analyst Price Targets and Opinions
The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of WFT is currently at a -42.69% to its one-year price target of 4.99. Looking at its rival pricing, SWN is at a -49.16% relative to its price target of 7.18. This figure implies that over the next one year, SWN is a better investment.
When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), WFT is given a 2.30 while 2.80 placed for SWN. This means that analysts are more bullish on the outlook for SWN stocks.
Insider Activity and Investor Sentiment
Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for WFT is 6.50 while that of SWN is just 1.68. This means that analysts are more bullish on the forecast for SWN stock.
The stock of Weatherford International plc defeats that of Southwestern Energy Company when the two are compared, with WFT taking 7 out of the total factors that were been considered. WFT happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, WFT is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for WFT is better on when it is viewed on short interest.