Marathon Oil Corporation (NYSE:MRO) shares are up more than 7.27% this year and recently increased 3.01% or $0.53 to settle at $18.16. Glu Mobile Inc. (NASDAQ:GLUU), on the other hand, is up 9.34% year to date as of 04/13/2018. It currently trades at $3.98 and has returned 8.74% during the past week.
Marathon Oil Corporation (NYSE:MRO) and Glu Mobile Inc. (NASDAQ:GLUU) are the two most active stocks in the Independent Oil & Gas industry 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.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, GLUU is expected to grow at a 15.00% annual rate. All else equal, GLUU’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. Marathon Oil Corporation (MRO) has an EBITDA margin of 40.25%. This suggests that MRO underlying business is more profitable MRO’s ROI is -3.50% while GLUU has a ROI of -81.60%. The interpretation is that MRO’s business generates a higher return on investment than GLUU’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. MRO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, GLUU’s free cash flow per share was -0.02. On a percent-of-sales basis, MRO’s free cash flow was -4.85% while GLUU converted -0% of its revenues into cash flow. This means that, for a given level of sales, GLUU 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. MRO has a current ratio of 1.30 compared to 1.00 for GLUU. This means that MRO can more easily cover its most immediate liabilities over the next twelve months. MRO’s debt-to-equity ratio is 0.47 versus a D/E of 0.00 for GLUU. MRO is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MRO trades at a forward P/E of 29.10, a P/B of 1.32, and a P/S of 3.28, compared to a forward P/E of 18.51, a P/B of 3.55, and a P/S of 1.88 for GLUU. MRO 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
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”. MRO is currently priced at a -13.28% to its one-year price target of 20.94. Comparatively, GLUU is -21.96% relative to its price target of 5.10. This suggests that GLUU is the better investment over the next year.
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. MRO has a beta of 2.32 and GLUU’s beta is 1.37. GLUU’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MRO has a short ratio of 1.16 compared to a short interest of 1.94 for GLUU. This implies that the market is currently less bearish on the outlook for MRO.Summary
Glu Mobile Inc. (NASDAQ:GLUU) beats Marathon Oil Corporation (NYSE:MRO) on a total of 9 of the 14 factors compared between the two stocks. GLUU is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, GLUU is the cheaper of the two stocks on an earnings and sales basis, GLUU is more undervalued relative to its price target.