Helix Energy Solutions Group, Inc. (NYSE:HLX) and C&J Energy Services, Inc. (NYSE:CJ) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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 Return on Investment (ROI) to measure this. HLX’s ROI is -2.80% while CJ has a ROI of 266.70%. The interpretation is that CJ’s business generates a higher return on investment than HLX’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. HLX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.41. Comparatively, CJ’s free cash flow per share was -1.28. On a percent-of-sales basis, HLX’s free cash flow was -0.01% while CJ converted 0% of its revenues into cash flow. This means that, for a given level of sales, CJ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. HLX has a current ratio of 2.20 compared to 3.30 for CJ. This means that CJ can more easily cover its most immediate liabilities over the next twelve months. HLX’s debt-to-equity ratio is 0.34 versus a D/E of 0.00 for CJ. HLX is therefore the more solvent of the two companies, and has lower financial risk.
HLX trades at a forward P/E of 33.74, a P/B of 0.56, and a P/S of 1.57, compared to a forward P/E of 12.13, a P/B of 1.44, and a P/S of 1.39 for CJ. HLX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. HLX is currently priced at a -36.8% to its one-year price target of $9.13. Comparatively, CJ is -35.11% relative to its price target of $39.73. This suggests that HLX 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 1.90 for HLX and 1.90 for CJ, which implies that analysts are equally bullish on their outlook for the two stocks.
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. HLX has a beta of 2.64.
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. HLX has a short ratio of 3.26 compared to a short interest of 3.41 for CJ. This implies that the market is currently less bearish on the outlook for HLX.
C&J Energy Services, Inc. (NYSE:CJ) beats Helix Energy Solutions Group, Inc. (NYSE:HLX) on a total of 6 of the 11 factors compared between the two stocks. CJ has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CJ is the cheaper of the two stocks on an earnings and sales basis, Finally, SPN has better sentiment signals based on short interest.