Mammoth Energy Services, Inc. (NASDAQ:TUSK) and SandRidge Energy, Inc. (NYSE:SD) 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.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. TUSK’s ROI is -20.10% while SD has a ROI of 150.20%. The interpretation is that SD’s business generates a higher return on investment than TUSK’s.
If there’s one thing investors care more about than earnings, it’s cash flow. TUSK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.65. Comparatively, SD’s free cash flow per share was -0.17. On a percent-of-sales basis, TUSK’s free cash flow was -0.01% while SD converted -0% of its revenues into cash flow. This means that, for a given level of sales, SD 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. TUSK has a current ratio of 1.50 compared to 1.30 for SD. This means that TUSK can more easily cover its most immediate liabilities over the next twelve months. TUSK’s debt-to-equity ratio is 0.15 versus a D/E of 0.00 for SD. TUSK is therefore the more solvent of the two companies, and has lower financial risk.
TUSK trades at a forward P/E of 8.95, a P/B of 1.00, and a P/S of 1.67, compared to a forward P/E of 13.57, a P/B of 0.70, and a P/S of 1.66 for SD. TUSK is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. TUSK is currently priced at a -50.33% to its one-year price target of $22.47. Comparatively, SD is -13.23% relative to its price target of $20.33. This suggests that TUSK is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for TUSK and 2.70 for SD, which implies that analysts are more bullish on the outlook for SD.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. TUSK has a short ratio of 2.76 compared to a short interest of 7.60 for SD. This implies that the market is currently less bearish on the outlook for TUSK.
SandRidge Energy, Inc. (NYSE:SD) beats Mammoth Energy Services, Inc. (NASDAQ:TUSK) on a total of 6 of the 12 factors compared between the two stocks. SD higher liquidity, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, SD is the cheaper of the two stocks on book value and sales basis, Finally, UNT has better sentiment signals based on short interest.