NGL Energy Partners LP (NYSE:NGL) and CVR Energy, Inc. (NYSE:CVI) 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.
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. NGL Energy Partners LP (NGL) has an EBITDA margin of 2.28%, compared to an EBITDA margin of 5.85% for CVR Energy, Inc. (CVI). This suggests that CVI underlying business is more profitable. NGL’s ROI is 5.10% while CVI has a ROI of 5.20%. The interpretation is that CVI’s business generates a higher return on investment than NGL’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. NGL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.70. Comparatively, CVI’s free cash flow per share was +0.33. On a percent-of-sales basis, NGL’s free cash flow was -0.65% while CVI converted 0.6% of its revenues into cash flow. This means that, for a given level of sales, CVI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. NGL has a current ratio of 1.60 compared to 2.20 for CVI. This means that CVI can more easily cover its most immediate liabilities over the next twelve months. NGL’s debt-to-equity ratio is 1.40 versus a D/E of 1.49 for CVI. CVI is therefore the more solvent of the two companies, and has lower financial risk.
NGL trades at a forward P/E of 22.98, a P/B of 0.56, and a P/S of 0.09, compared to a forward P/E of 52.47, a P/B of 1.98, and a P/S of 0.28 for CVI. NGL is the cheaper 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
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. NGL is currently priced at a -34.93% to its one-year price target of $14.83. Comparatively, CVI is -6.11% relative to its price target of $19.00. This suggests that NGL 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 2.20 for NGL and 3.00 for CVI, which implies that analysts are more bullish on the outlook for CVI.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. NGL has a beta of 0.56 and CVI’s beta is 1.70. NGL’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. NGL has a short ratio of 1.44 compared to a short interest of 10.45 for CVI. This implies that the market is currently less bearish on the outlook for NGL.
NGL Energy Partners LP (NYSE:NGL) beats CVR Energy, Inc. (NYSE:CVI) on a total of 8 of the 13 factors compared between the two stocks. NGL has lower financial risk. In terms of valuation, NGL is the cheaper of the two stocks on an earnings, book value and sales basis, NGL is more undervalued relative to its price target. Finally, NGL has better sentiment signals based on short interest.