Eclipse Resources Corporation (NYSE:ECR) shares are down more than -30.00% this year and recently increased 9.09% or $0.14 to settle at $1.68. AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX), on the other hand, is up 50.62% year to date as of 05/16/2018. It currently trades at $3.05 and has returned 22.00% during the past week.
Eclipse Resources Corporation (NYSE:ECR) and AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ECR to grow earnings at a 25.90% annual rate over the next 5 years.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. Eclipse Resources Corporation (ECR) has an EBITDA margin of 20.84%. This suggests that ECR underlying business is more profitable ECR’s ROI is 1.20% while ACRX has a ROI of -5.90%. The interpretation is that ECR’s business generates a higher return on investment than ACRX’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ECR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.22. Comparatively, ACRX’s free cash flow per share was -0.15. On a percent-of-sales basis, ECR’s free cash flow was -0.02% while ACRX converted -0.1% of its revenues into cash flow. This means that, for a given level of sales, ECR is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. ECR has a current ratio of 0.90 compared to 4.00 for ACRX. This means that ACRX can more easily cover its most immediate liabilities over the next twelve months.Valuation
ECR trades at a forward P/E of 73.04, a P/B of 0.75, and a P/S of 1.32, compared to a P/S of 29.84 for ACRX. ECR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ECR is currently priced at a -30.86% to its one-year price target of 2.43. Comparatively, ACRX is -31% relative to its price target of 4.42. This suggests that ACRX is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ECR has a beta of 2.90 and ACRX’s beta is 2.25. ACRX’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. ECR has a short ratio of 2.98 compared to a short interest of 6.41 for ACRX. This implies that the market is currently less bearish on the outlook for ECR.Summary
AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) beats Eclipse Resources Corporation (NYSE:ECR) on a total of 7 of the 14 factors compared between the two stocks. ACRX is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, ACRX is the cheaper of the two stocks on an earnings and book value, ACRX is more undervalued relative to its price target. Finally, NSPR has better sentiment signals based on short interest.