Scorpio Tankers Inc. (NYSE:STNG) shares are down more than -21.31% this year and recently increased 3.45% or $0.08 to settle at $2.40. CMS Energy Corporation (NYSE:CMS), on the other hand, is down -9.30% year to date as of 02/14/2018. It currently trades at $42.90 and has returned 1.76% during the past week.
Scorpio Tankers Inc. (NYSE:STNG) and CMS Energy Corporation (NYSE:CMS) are the two most active stocks in the market 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, CMS is expected to grow at a 7.34% annual rate. All else equal, CMS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of -330.14% for CMS Energy Corporation (CMS). STNG’s ROI is 2.40% while CMS has a ROI of 7.20%. The interpretation is that CMS’s business generates a higher return on investment than STNG’s.
If there’s one thing investors care more about than earnings, it’s cash flow. STNG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.34. Comparatively, CMS’s free cash flow per share was -1.69. On a percent-of-sales basis, STNG’s free cash flow was -0.02% while CMS converted -7.45% of its revenues into cash flow. This means that, for a given level of sales, STNG is able to generate more free cash flow for investors.
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. STNG has a current ratio of 1.00 compared to 0.90 for CMS. This means that STNG can more easily cover its most immediate liabilities over the next twelve months. STNG’s debt-to-equity ratio is 1.73 versus a D/E of 2.28 for CMS. CMS is therefore the more solvent of the two companies, and has lower financial risk.
STNG trades at a forward P/E of 17.27, a P/B of 0.34, and a P/S of 1.66, compared to a forward P/E of 18.44, a P/B of 2.66, and a P/S of 1.87 for CMS. STNG is the cheaper 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”. STNG is currently priced at a -50.72% to its one-year price target of 4.87. Comparatively, CMS is -13.07% relative to its price target of 49.35. This suggests that STNG 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 STNG and 2.30 for CMS, which implies that analysts are more bullish on the outlook for CMS.
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. STNG has a beta of 1.24 and CMS’s beta is 0.20. CMS’s shares are therefore the less volatile of the two stocks.
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.STNG has a short ratio of 4.79 compared to a short interest of 2.76 for CMS. This implies that the market is currently less bearish on the outlook for CMS.
Scorpio Tankers Inc. (NYSE:STNG) beats CMS Energy Corporation (NYSE:CMS) on a total of 10 of the 14 factors compared between the two stocks. STNG is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, STNG is the cheaper of the two stocks on an earnings, book value and sales basis, STNG is more undervalued relative to its price target. Finally, TECK has better sentiment signals based on short interest.