Earnings

Which Market Offer More Value? – Companhia Energetica de Minas Gerais (CIG), Gulfport Energy Corporation (GPOR)

The shares of Companhia Energetica de Minas Gerais have decreased by more than -1.94% this year alone. The shares recently went down by -4.27% or -$0.09 and now trades at $2.02. The shares of Gulfport Energy Corporation (NASDAQ:GPOR), has slumped by -16.54% year to date as of 05/18/2018. The shares currently trade at $10.65 and have been able to report a change of 3.30% over the past one week.

The stock of Companhia Energetica de Minas Gerais and Gulfport Energy Corporation were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 0.00% versus 6.07%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that CIG will grow it’s earning at a 0.00% annual rate in the next 5 years. This is in contrast to GPOR which will have a positive growth at a 6.07% annual rate. This means that the higher growth rate of GPOR implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of CIG is 7.00% while that of GPOR is 10.60%. These figures suggest that GPOR ventures generate a higher ROI than that of CIG.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CIG’s free cash flow per share is a negative -28.15, while that of GPOR is also a negative -5.78.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CIG is 0.90 and that of GPOR is 0.60. This implies that it is easier for CIG to cover its immediate obligations over the next 12 months than GPOR. The debt ratio of CIG is 0.93 compared to 0.73 for GPOR. CIG can be able to settle its long-term debts and thus is a lower financial risk than GPOR.

Valuation

CIG currently trades at a forward P/E of 4.62, a P/B of 0.64, and a P/S of 0.51 while GPOR trades at a forward P/E of 8.59, a P/B of 0.62, and a P/S of 1.47. This means that looking at the earnings, book values and sales basis, CIG is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of CIG is currently at a -34.84% to its one-year price target of 3.10. Looking at its rival pricing, GPOR is at a -27.55% relative to its price target of 14.70.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), CIG is given a 2.00 while 2.10 placed for GPOR. This means that analysts are more bullish on the outlook for GPOR stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for CIG is 1.85 while that of GPOR is just 2.85. This means that analysts are more bullish on the forecast for CIG stock.

Conclusion

The stock of Companhia Energetica de Minas Gerais defeats that of Gulfport Energy Corporation when the two are compared, with CIG taking 6 out of the total factors that were been considered. CIG happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, CIG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CIG is better on when it is viewed on short interest.

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