Noble Energy, Inc. (NYSE:NBL) shares are down more than -9.20% this year and recently increased 3.64% or $0.93 to settle at $26.46. Walmart Inc. (NYSE:WMT), on the other hand, is up 2.99% year to date as of 02/14/2018. It currently trades at $101.70 and has returned -1.12% during the past week.
Noble Energy, Inc. (NYSE:NBL) and Walmart Inc. (NYSE:WMT) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 NBL to grow earnings at a 3.85% annual rate over the next 5 years. Comparatively, WMT is expected to grow at a 7.10% annual rate. All else equal, WMT’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 EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 6.18% for Walmart Inc. (WMT). NBL’s ROI is -3.10% while WMT has a ROI of 13.40%. The interpretation is that WMT’s business generates a higher return on investment than NBL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. NBL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.51. Comparatively, WMT’s free cash flow per share was +0.56. On a percent-of-sales basis, NBL’s free cash flow was -7.11% while WMT converted 0.34% of its revenues into cash flow. This means that, for a given level of sales, WMT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. NBL has a current ratio of 1.00 compared to 0.80 for WMT. This means that NBL can more easily cover its most immediate liabilities over the next twelve months. NBL’s debt-to-equity ratio is 0.80 versus a D/E of 0.66 for WMT. NBL is therefore the more solvent of the two companies, and has lower financial risk.
NBL trades at a forward P/E of 54.00, a P/B of 1.36, and a P/S of 3.14, compared to a forward P/E of 20.56, a P/B of 3.98, and a P/S of 0.61 for WMT. NBL 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. NBL is currently priced at a -31.73% to its one-year price target of 38.76. Comparatively, WMT is -5.02% relative to its price target of 107.07. This suggests that NBL 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 2.10 for NBL and 2.20 for WMT, which implies that analysts are more bullish on the outlook for WMT.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. NBL has a beta of 1.23 and WMT’s beta is 0.48. WMT’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. NBL has a short ratio of 3.61 compared to a short interest of 3.42 for WMT. This implies that the market is currently less bearish on the outlook for WMT.
Walmart Inc. (NYSE:WMT) beats Noble Energy, Inc. (NYSE:NBL) on a total of 10 of the 14 factors compared between the two stocks. WMT higher liquidity, is more profitable, 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, WMT is the cheaper of the two stocks on an earnings and sales basis, Finally, WMT has better sentiment signals based on short interest.