Global

Dissecting the Numbers for Valero Energy Corporation (VLO) and Turtle Beach Corporation (HEAR)

Valero Energy Corporation (NYSE:VLO) shares are up more than 28.41% this year and recently decreased -2.11% or -$2.55 to settle at $118.02. Turtle Beach Corporation (NASDAQ:HEAR), on the other hand, is up 1005.96% year to date as of 06/12/2018. It currently trades at $20.04 and has returned 19.64% during the past week.

Valero Energy Corporation (NYSE:VLO) and Turtle Beach Corporation (NASDAQ:HEAR) are the two most active stocks in the Oil & Gas Refining & Marketing 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

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 VLO to grow earnings at a 36.24% annual rate over the next 5 years. Comparatively, HEAR is expected to grow at a 20.00% annual rate. All else equal, VLO’s higher growth rate would imply a greater potential for capital appreciation.

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., compared to an EBITDA margin of 13.39% for Turtle Beach Corporation (HEAR). VLO’s ROI is 8.70% while HEAR has a ROI of 21.30%. The interpretation is that HEAR’s business generates a higher return on investment than VLO’s.

Cash Flow



Cash is king when it comes to investing. VLO’s free cash flow (“FCF”) per share for the trailing twelve months was -1.56. Comparatively, HEAR’s free cash flow per share was +3.05. On a percent-of-sales basis, VLO’s free cash flow was -0.72% while HEAR converted 0.03% of its revenues into cash flow. This means that, for a given level of sales, HEAR 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. VLO has a current ratio of 1.70 compared to 2.20 for HEAR. This means that HEAR can more easily cover its most immediate liabilities over the next twelve months.

Valuation

VLO trades at a forward P/E of 12.12, a P/B of 2.33, and a P/S of 0.52, compared to a forward P/E of 14.37, and a P/S of 1.38 for HEAR. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. VLO is currently priced at a -5.49% to its one-year price target of 124.88. Comparatively, HEAR is 27.89% relative to its price target of 15.67. This suggests that VLO is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. VLO has a beta of 0.92 and HEAR’s beta is 0.69. HEAR’s shares are therefore the less volatile of the two stocks.

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. VLO has a short ratio of 3.31 compared to a short interest of 0.54 for HEAR. This implies that the market is currently less bearish on the outlook for HEAR.

Summary

Turtle Beach Corporation (NASDAQ:HEAR) beats Valero Energy Corporation (NYSE:VLO) on a total of 10 of the 14 factors compared between the two stocks. HEAR is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, HEAR has better sentiment signals based on short interest.

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