Global

Set Sail With Nordic American Tankers Limited (NAT), Parker Drilling Company (PKD)

The shares of Nordic American Tankers Limited have decreased by more than -21.54% this year alone. The shares recently went down by -6.76% or -$0.14 and now trades at $1.93. The shares of Parker Drilling Company (NYSE:PKD), has slumped by -32.90% year to date as of 03/27/2018. The shares currently trade at $0.67 and have been able to report a change of -8.41% over the past one week.

The stock of Nordic American Tankers Limited and Parker Drilling Company were two of the most active stocks on Tuesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 5.00% versus 12.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that NAT will grow it’s earning at a 5.00% annual rate in the next 5 years. This is in contrast to PKD which will have a positive growth at a 12.00% annual rate. This means that the higher growth rate of PKD implies a greater potential for capital appreciation over the years.



Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. NAT has an EBITDA margin of 8.08%, this implies that the underlying business of PKD is more profitable. These figures suggest that NAT ventures generate a higher ROI than that of PKD.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, NAT’s free cash flow per share is a negative -0.01.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for NAT is 5.00 and that of PKD is 3.10. This implies that it is easier for NAT to cover its immediate obligations over the next 12 months than PKD. The debt ratio of NAT is 0.46 compared to 1.96 for PKD. PKD can be able to settle its long-term debts and thus is a lower financial risk than NAT.

Valuation

NAT currently trades at a P/B of 0.25, and a P/S of 1.04 while PKD trades at a P/B of 0.32, and a P/S of 0.21. This means that looking at the earnings, book values and sales basis, NAT is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of NAT is currently at a -47.12% to its one-year price target of 3.65. Looking at its rival pricing, PKD is at a -39.09% relative to its price target of 1.10. This figure implies that over the next one year, PKD is a better investment.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), NAT is given a 3.40 while 2.40 placed for PKD. This means that analysts are more bullish on the outlook for NAT stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for NAT is 3.05 while that of PKD is just 5.89. This means that analysts are more bullish on the forecast for NAT stock.

Conclusion

The stock of Parker Drilling Company defeats that of Nordic American Tankers Limited when the two are compared, with PKD taking 6 out of the total factors that were been considered. PKD happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, PKD is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PKD is better on when it is viewed on short interest.

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