RSP Permian, Inc. (NYSE:RSPP) shares are up more than 2.80% this year and recently decreased -1.74% or -$0.74 to settle at $41.82. Renewable Energy Group, Inc. (NASDAQ:REGI), on the other hand, is up 43.64% year to date as of 06/13/2018. It currently trades at $16.95 and has returned -4.51% during the past week.
RSP Permian, Inc. (NYSE:RSPP) and Renewable Energy Group, Inc. (NASDAQ:REGI) are the two most active stocks in the Oil & Gas Drilling & Exploration 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 RSPP to grow earnings at a 58.08% annual rate over the next 5 years. Comparatively, REGI is expected to grow at a 15.00% annual rate. All else equal, RSPP’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 7.2% for Renewable Energy Group, Inc. (REGI). RSPP’s ROI is 8.50% while REGI has a ROI of 9.90%. The interpretation is that REGI’s business generates a higher return on investment than RSPP’s.Cash Flow
Cash is king when it comes to investing. RSPP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.43. Comparatively, REGI’s free cash flow per share was -1.15. On a percent-of-sales basis, RSPP’s free cash flow was -0.01% while REGI converted -1.99% of its revenues into cash flow. This means that, for a given level of sales, RSPP 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. RSPP has a current ratio of 0.80 compared to 1.90 for REGI. This means that REGI can more easily cover its most immediate liabilities over the next twelve months. RSPP’s debt-to-equity ratio is 0.36 versus a D/E of 0.43 for REGI. REGI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
RSPP trades at a forward P/E of 13.30, a P/B of 1.49, and a P/S of 7.25, compared to a forward P/E of 9.97, a P/B of 0.85, and a P/S of 0.26 for REGI. RSPP is the expensive of the two stocks on an earnings, book value and sales basis. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. RSPP is currently priced at a -22.58% to its one-year price target of 54.02. Comparatively, REGI is -8.38% relative to its price target of 18.50. This suggests that RSPP 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. RSPP has a beta of 1.57 and REGI’s beta is 0.98. REGI’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. RSPP has a short ratio of 1.95 compared to a short interest of 8.85 for REGI. This implies that the market is currently less bearish on the outlook for RSPP.Summary
Renewable Energy Group, Inc. (NASDAQ:REGI) beats RSP Permian, Inc. (NYSE:RSPP) on a total of 7 of the 14 factors compared between the two stocks. REGI is growing fastly and higher liquidity. In terms of valuation, REGI is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CAT has better sentiment signals based on short interest.