Devon Energy Corporation (NYSE:DVN) shares are down more than -18.79% this year and recently increased 0.06% or $0.02 to settle at $33.62. DISH Network Corporation (NASDAQ:DISH), on the other hand, is down -18.39% year to date as of 04/16/2018. It currently trades at $38.97 and has returned 1.43% during the past week.
Devon Energy Corporation (NYSE:DVN) and DISH Network Corporation (NASDAQ:DISH) are the two most active stocks in the Independent Oil & Gas industry 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect DVN to grow earnings at a 71.19% annual rate over the next 5 years. Comparatively, DISH is expected to grow at a -8.20% annual rate. All else equal, DVN’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., compared to an EBITDA margin of 17.59% for DISH Network Corporation (DISH). DVN’s ROI is 7.80% while DISH has a ROI of 3.80%. The interpretation is that DVN’s business generates a higher return on investment than DISH’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. DVN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.20. Comparatively, DISH’s free cash flow per share was +0.50. On a percent-of-sales basis, DVN’s free cash flow was -0.75% while DISH converted 1.62% of its revenues into cash flow. This means that, for a given level of sales, DISH is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. DVN has a current ratio of 1.40 compared to 0.70 for DISH. This means that DVN can more easily cover its most immediate liabilities over the next twelve months. DVN’s debt-to-equity ratio is 1.12 versus a D/E of 2.34 for DISH. DISH is therefore the more solvent of the two companies, and has lower financial risk.Valuation
DVN trades at a forward P/E of 14.68, a P/B of 1.90, and a P/S of 1.24, compared to a forward P/E of 18.17, a P/B of 2.62, and a P/S of 1.27 for DISH. DVN is the cheaper 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
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”. DVN is currently priced at a -28.62% to its one-year price target of 47.10. Comparatively, DISH is -40.53% relative to its price target of 65.53. This suggests that DISH is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. DVN has a beta of 2.20 and DISH’s beta is 1.12. DISH’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. DVN has a short ratio of 2.14 compared to a short interest of 5.54 for DISH. This implies that the market is currently less bearish on the outlook for DVN.Summary
Devon Energy Corporation (NYSE:DVN) beats DISH Network Corporation (NASDAQ:DISH) on a total of 10 of the 14 factors compared between the two stocks. DVN is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, DVN is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, DVN has better sentiment signals based on short interest.