Finance

Dissecting the Numbers for Cenovus Energy Inc. (CVE) and Camping World Holdings, Inc. (CWH)

Cenovus Energy Inc. (NYSE:CVE) shares are up more than 9.09% this year and recently increased 4.84% or $0.46 to settle at $9.96. Camping World Holdings, Inc. (NYSE:CWH), on the other hand, is down -38.95% year to date as of 04/25/2018. It currently trades at $27.26 and has returned -3.13% during the past week.

Cenovus Energy Inc. (NYSE:CVE) and Camping World Holdings, Inc. (NYSE:CWH) are the two most active stocks in the Oil & Gas Drilling & Exploration industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

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. Comparatively, CWH is expected to grow at a 11.80% annual rate. All else equal, CWH’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 9.82% for Camping World Holdings, Inc. (CWH). CVE’s ROI is 1.30% while CWH has a ROI of 16.50%. The interpretation is that CWH’s business generates a higher return on investment than CVE’s.

Cash Flow



Cash is king when it comes to investing. CVE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.22. Comparatively, CWH’s free cash flow per share was -7.15. On a percent-of-sales basis, CVE’s free cash flow was 2.06% while CWH converted -14.61% of its revenues into cash flow. This means that, for a given level of sales, CVE 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. CVE has a current ratio of 1.10 compared to 1.40 for CWH. This means that CWH can more easily cover its most immediate liabilities over the next twelve months. CVE’s debt-to-equity ratio is 0.00 versus a D/E of 33.48 for CWH. CWH is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CVE trades at a forward P/E of 19.19, a P/B of 0.78, and a P/S of 0.97, compared to a forward P/E of 8.08, a P/B of 12.86, and a P/S of 0.58 for CWH. CVE 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

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. CVE is currently priced at a -8.2% to its one-year price target of 10.85. Comparatively, CWH is -49.23% relative to its price target of 53.69. This suggests that CWH is the better investment over the next year.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CVE has a short ratio of 6.16 compared to a short interest of 3.32 for CWH. This implies that the market is currently less bearish on the outlook for CWH.

Summary




Camping World Holdings, Inc. (NYSE:CWH) beats Cenovus Energy Inc. (NYSE:CVE) on a total of 10 of the 14 factors compared between the two stocks. CWH has higher cash flow per share, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, CWH is the cheaper of the two stocks on an earnings and sales basis, CWH is more undervalued relative to its price target. Finally, CWH has better sentiment signals based on short interest.

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