Oil States International, Inc. (NYSE:OIS) and Archrock, Inc. (NYSE:AROC) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect OIS to grow earnings at a -6.99% annual rate over the next 5 years. Comparatively, AROC is expected to grow at a -12.91% annual rate. All else equal, OIS’s higher growth rate would imply a greater potential for capital appreciation.
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. OIS’s ROI is -3.40% while AROC has a ROI of 0.90%. The interpretation is that AROC’s business generates a higher return on investment than OIS’s.
If there’s one thing investors care more about than earnings, it’s cash flow. OIS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.12. Comparatively, AROC’s free cash flow per share was -0.44. On a percent-of-sales basis, OIS’s free cash flow was 0% while AROC converted -0% of its revenues into cash flow. This means that, for a given level of sales, OIS 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. OIS has a current ratio of 4.60 compared to 1.80 for AROC. This means that OIS can more easily cover its most immediate liabilities over the next twelve months. OIS’s debt-to-equity ratio is 0.04 versus a D/E of 1.97 for AROC. AROC is therefore the more solvent of the two companies, and has lower financial risk.
OIS trades at a forward P/B of 0.96, and a P/S of 1.71, compared to a forward P/E of 74.21, a P/B of 0.89, and a P/S of 0.88 for AROC. 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. OIS is currently priced at a -21.82% to its one-year price target of $28.65. Comparatively, AROC is -30.95% relative to its price target of $13.54. This suggests that AROC 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 2.60 for OIS and 2.80 for AROC, which implies that analysts are more bullish on the outlook for AROC.
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. OIS has a beta of 1.70 and AROC’s beta is 3.41. OIS’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. OIS has a short ratio of 7.52 compared to a short interest of 3.63 for AROC. This implies that the market is currently less bearish on the outlook for AROC.
Oil States International, Inc. (NYSE:OIS) beats Archrock, Inc. (NYSE:AROC) on a total of 6 of the 12 factors compared between the two stocks. OIS is growing fastly, has higher cash flow per share, higher liquidity and has lower financial risk. Finally, SPN has better sentiment signals based on short interest.