Range Resources Corporation (NYSE:RRC) shares are down more than -9.38% this year and recently increased 4.53% or $0.67 to settle at $15.46. Canadian Solar Inc. (NASDAQ:CSIQ), on the other hand, is up 4.15% year to date as of 05/16/2018. It currently trades at $17.56 and has returned 8.00% during the past week.
Range Resources Corporation (NYSE:RRC) and Canadian Solar Inc. (NASDAQ:CSIQ) 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
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. Analysts expect RRC to grow earnings at a 47.07% annual rate over the next 5 years. Comparatively, CSIQ is expected to grow at a 33.50% annual rate. All else equal, RRC’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. Range Resources Corporation (RRC) has an EBITDA margin of 43.87%. This suggests that RRC underlying business is more profitable RRC’s ROI is -0.40% while CSIQ has a ROI of 5.60%. The interpretation is that CSIQ’s business generates a higher return on investment than RRC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. RRC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, CSIQ’s free cash flow per share was -. On a percent-of-sales basis, RRC’s free cash flow was 1.24% while CSIQ converted 0% of its revenues into cash flow. This means that, for a given level of sales, RRC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. RRC has a current ratio of 0.50 compared to 1.00 for CSIQ. This means that CSIQ can more easily cover its most immediate liabilities over the next twelve months. RRC’s debt-to-equity ratio is 0.70 versus a D/E of 2.97 for CSIQ. CSIQ is therefore the more solvent of the two companies, and has lower financial risk.Valuation
RRC trades at a forward P/E of 16.29, a P/B of 0.65, and a P/S of 1.57, compared to a forward P/E of 10.84, a P/B of 0.99, and a P/S of 0.29 for CSIQ. RRC 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
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. RRC is currently priced at a -28.69% to its one-year price target of 21.68. Comparatively, CSIQ is -5.49% relative to its price target of 18.58. This suggests that RRC 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. RRC has a beta of 0.60 and CSIQ’s beta is 2.46. RRC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. RRC has a short ratio of 7.42 compared to a short interest of 2.50 for CSIQ. This implies that the market is currently less bearish on the outlook for CSIQ.Summary
Range Resources Corporation (NYSE:RRC) beats Canadian Solar Inc. (NASDAQ:CSIQ) on a total of 9 of the 14 factors compared between the two stocks. RRC is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. RRC is more undervalued relative to its price target.