EOG Resources, Inc. (NYSE:EOG) shares are down more than -6.73% this year and recently decreased -2.09% or -$2.15 to settle at $100.65. The Mosaic Company (NYSE:MOS), on the other hand, is up 7.64% year to date as of 03/12/2018. It currently trades at $27.62 and has returned -1.29% during the past week.
EOG Resources, Inc. (NYSE:EOG) and The Mosaic Company (NYSE:MOS) 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, MOS is expected to grow at a 13.20% annual rate. All else equal, MOS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 15.89% for The Mosaic Company (MOS). EOG’s ROI is 2.90% while MOS has a ROI of 2.90%. The interpretation is that EOG’s business generates a higher return on investment than MOS’s.
Cash is king when it comes to investing. EOG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.40. Comparatively, MOS’s free cash flow per share was -0.33. On a percent-of-sales basis, EOG’s free cash flow was -2.07% while MOS converted -1.56% of its revenues into cash flow. This means that, for a given level of sales, MOS 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. EOG has a current ratio of 1.20 compared to 2.30 for MOS. This means that MOS can more easily cover its most immediate liabilities over the next twelve months. EOG’s debt-to-equity ratio is 0.39 versus a D/E of 0.54 for MOS. MOS is therefore the more solvent of the two companies, and has lower financial risk.
EOG trades at a forward P/E of 21.44, a P/B of 3.56, and a P/S of 5.04, compared to a forward P/E of 15.46, a P/B of 1.01, and a P/S of 1.26 for MOS. EOG is the expensive 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. EOG is currently priced at a -19.82% to its one-year price target of 125.53. Comparatively, MOS is -4.92% relative to its price target of 29.05. This suggests that EOG 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 2.20 for EOG and 2.60 for MOS, which implies that analysts are more bullish on the outlook for MOS.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. EOG has a beta of 1.11 and MOS’s beta is 1.24. EOG’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.EOG has a short ratio of 3.40 compared to a short interest of 2.79 for MOS. This implies that the market is currently less bearish on the outlook for MOS.
The Mosaic Company (NYSE:MOS) beats EOG Resources, Inc. (NYSE:EOG) on a total of 8 of the 14 factors compared between the two stocks. MOS is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, MOS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, MOS has better sentiment signals based on short interest.