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Comparing Ultra Petroleum Corp. (UPL) and Ascena Retail Group, Inc. (ASNA)

Ultra Petroleum Corp. (NASDAQ:UPL) shares are down more than -77.37% this year and recently increased 11.11% or $0.2 to settle at $2.05. Ascena Retail Group, Inc. (NASDAQ:ASNA), on the other hand, is up 21.28% year to date as of 05/15/2018. It currently trades at $2.85 and has returned 33.18% during the past week.

Ultra Petroleum Corp. (NASDAQ:UPL) and Ascena Retail Group, Inc. (NASDAQ:ASNA) 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. Analysts expect UPL to grow earnings at a 20.40% annual rate over the next 5 years. Comparatively, ASNA is expected to grow at a 21.00% annual rate. All else equal, ASNA’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. Ultra Petroleum Corp. (UPL) has an EBITDA margin of 88.57%. This suggests that UPL underlying business is more profitable UPL’s ROI is 52.00% while ASNA has a ROI of -41.00%. The interpretation is that UPL’s business generates a higher return on investment than ASNA’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. UPL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, ASNA’s free cash flow per share was +0.51. On a percent-of-sales basis, UPL’s free cash flow was 0% while ASNA converted 1.5% of its revenues into cash flow. This means that, for a given level of sales, ASNA 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. UPL has a current ratio of 0.60 compared to 1.30 for ASNA. This means that ASNA can more easily cover its most immediate liabilities over the next twelve months.

Valuation

UPL trades at a forward P/E of 1.71, and a P/S of 0.64, compared to a forward P/E of 203.57, a P/B of 0.70, and a P/S of 0.08 for ASNA. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. UPL is currently priced at a -68.46% to its one-year price target of 6.50. Comparatively, ASNA is 26.67% relative to its price target of 2.25. This suggests that UPL is the better investment over the next year.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. UPL has a short ratio of 5.62 compared to a short interest of 26.28 for ASNA. This implies that the market is currently less bearish on the outlook for UPL.

Summary




Ultra Petroleum Corp. (NASDAQ:UPL) beats Ascena Retail Group, Inc. (NASDAQ:ASNA) on a total of 9 of the 14 factors compared between the two stocks. UPL is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, UPL is the cheaper of the two stocks on an earnings and book value, UPL is more undervalued relative to its price target. Finally, UPL has better sentiment signals based on short interest.

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