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Reliable Long-term Trend to Profit From: QEP Resources, Inc. (QEP), Baker Hughes, a GE company (BHGE)

The shares of QEP Resources, Inc. have decreased by more than -21.53% this year alone. The shares recently went down by -3.72% or -$0.29 and now trades at $7.51. The shares of Baker Hughes, a GE company (NYSE:BHGE), has slumped by -18.02% year to date as of 02/13/2018. The shares currently trade at $25.94 and have been able to report a change of -11.23% over the past one week.

The stock of QEP Resources, Inc. and Baker Hughes, a GE company were two of the most active stocks on Tuesday. 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.

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 QEP is -16.20% while that of BHGE is 2.70%. These figures suggest that BHGE ventures generate a higher ROI than that of QEP.



Cash Flow 

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, QEP’s free cash flow per share is a negative -12.24.

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 QEP is 1.60 and that of BHGE is 1.90. This implies that it is easier for QEP to cover its immediate obligations over the next 12 months than BHGE. The debt ratio of QEP is 0.56 compared to 0.12 for BHGE. QEP can be able to settle its long-term debts and thus is a lower financial risk than BHGE.

Valuation

QEP currently trades at a forward P/E of 2503.33, a P/B of 0.50, and a P/S of 1.16 while BHGE trades at a forward P/E of 16.18, a P/B of 0.28, and a P/S of 1.79. This means that looking at the earnings, book values and sales basis, QEP 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 QEP is currently at a -43.91% to its one-year price target of 13.39. Looking at its rival pricing, BHGE is at a -30.01% relative to its price target of 37.06. This figure implies that over the next one year, BHGE 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), QEP is given a 2.10 while 2.50 placed for BHGE. This means that analysts are more bullish on the outlook for BHGE 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 QEP is 3.80 while that of BHGE is just 3.50. This means that analysts are more bullish on the forecast for BHGE stock.

Conclusion

The stock of QEP Resources, Inc. defeats that of Baker Hughes, a GE company when the two are compared, with QEP taking 3 out of the total factors that were been considered. QEP 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, QEP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for QEP is better on when it is viewed on short interest.

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