Patterson-UTI Energy, Inc. (NASDAQ:PTEN) shares are down more than -20.47% this year and recently increased 2.81% or $0.5 to settle at $18.30. Nielsen Holdings plc (NYSE:NLSN), on the other hand, is down -9.40% year to date as of 02/14/2018. It currently trades at $32.98 and has returned -12.19% during the past week.
Patterson-UTI Energy, Inc. (NASDAQ:PTEN) and Nielsen Holdings plc (NYSE:NLSN) are the two most active stocks in the market 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 PTEN to grow earnings at a 22.60% annual rate over the next 5 years. Comparatively, NLSN is expected to grow at a 2.10% annual rate. All else equal, PTEN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 19.52% for Nielsen Holdings plc (NLSN). PTEN’s ROI is -9.80% while NLSN has a ROI of 6.60%. The interpretation is that NLSN’s business generates a higher return on investment than PTEN’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, PTEN’s free cash flow was 0% while NLSN converted 4.88% of its revenues into cash flow. This means that, for a given level of sales, NLSN 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. PTEN has a current ratio of 1.20 compared to 1.30 for NLSN. This means that NLSN can more easily cover its most immediate liabilities over the next twelve months. PTEN’s debt-to-equity ratio is 0.00 versus a D/E of 1.99 for NLSN. NLSN is therefore the more solvent of the two companies, and has lower financial risk.
PTEN trades at a forward P/E of 41.69, a P/B of 1.08, and a P/S of 2.32, compared to a forward P/E of 10.96, a P/B of 2.77, and a P/S of 1.80 for NLSN. PTEN 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
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”. PTEN is currently priced at a -32.7% to its one-year price target of 27.19. Comparatively, NLSN is -20.78% relative to its price target of 41.63. This suggests that PTEN 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 2.00 for PTEN and 2.20 for NLSN, which implies that analysts are more bullish on the outlook for NLSN.
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. PTEN has a beta of 1.23 and NLSN’s beta is 0.92. NLSN’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. PTEN has a short ratio of 3.50 compared to a short interest of 6.55 for NLSN. This implies that the market is currently less bearish on the outlook for PTEN.
Nielsen Holdings plc (NYSE:NLSN) beats Patterson-UTI Energy, Inc. (NASDAQ:PTEN) on a total of 8 of the 14 factors compared between the two stocks. NLSN is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, NLSN is the cheaper of the two stocks on an earnings and sales basis, Finally, TMUS has better sentiment signals based on short interest.