RSP Permian, Inc. (NYSE:RSPP) shares are up more than 1.33% this year and recently decreased -0.51% or -$0.21 to settle at $41.22. First Majestic Silver Corp. (NYSE:AG), on the other hand, is down -10.09% year to date as of 03/13/2018. It currently trades at $6.06 and has returned 1.68% during the past week.
RSP Permian, Inc. (NYSE:RSPP) and First Majestic Silver Corp. (NYSE:AG) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect RSPP to grow earnings at a 51.23% annual rate over the next 5 years. Comparatively, AG is expected to grow at a 46.80% annual rate. All else equal, RSPP’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. RSP Permian, Inc. (RSPP) has an EBITDA margin of 59.83%. This suggests that RSPP underlying business is more profitable
Cash is king when it comes to investing. RSPP’s free cash flow (“FCF”) per share for the trailing twelve months was -1.88. Comparatively, AG’s free cash flow per share was -0.06. On a percent-of-sales basis, RSPP’s free cash flow was -0.04% while AG converted -0% of its revenues into cash flow. This means that, for a given level of sales, AG is able to generate more free cash flow for investors.
RSPP trades at a forward P/E of 14.21, a P/B of 1.50, and a P/S of 7.89, compared to a forward P/E of 86.57, a P/B of 1.72, and a P/S of 3.98 for AG. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. RSPP is currently priced at a -22.11% to its one-year price target of 52.92. Comparatively, AG is -36.48% relative to its price target of 9.54. This suggests that AG 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 1.70 for RSPP and 2.30 for AG, which implies that analysts are more bullish on the outlook for AG.
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. RSPP has a short ratio of 2.94 compared to a short interest of 4.95 for AG. This implies that the market is currently less bearish on the outlook for RSPP.
RSP Permian, Inc. (NYSE:RSPP) beats First Majestic Silver Corp. (NYSE:AG) on a total of 8 of the 14 factors compared between the two stocks. RSPP is growing fastly, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, RSPP is the cheaper of the two stocks on an earnings and book value, Finally, RSPP has better sentiment signals based on short interest.