W&T Offshore, Inc. (NYSE:WTI) shares are up more than 18.77% this year and recently increased 4.11% or $0.13 to settle at $3.29. Bill Barrett Corporation (NYSE:BBG), on the other hand, is down -4.01% year to date as of 11/13/2017. It currently trades at $6.71 and has returned 1.82% during the past week.
W&T Offshore, Inc. (NYSE:WTI) and Bill Barrett Corporation (NYSE:BBG) are the two most active stocks in the Oil & Gas Drilling & Exploration industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, BBG is expected to grow at a 31.00% annual rate. All else equal, BBG’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 52.21% for Bill Barrett Corporation (BBG). WTI’s ROI is -45.10% while BBG has a ROI of -7.10%. The interpretation is that BBG’s business generates a higher return on investment than WTI’s.
Cash is king when it comes to investing. WTI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.20. Comparatively, BBG’s free cash flow per share was +0.01. On a percent-of-sales basis, WTI’s free cash flow was 0.01% while BBG converted 0% of its revenues into cash flow. This means that, for a given level of sales, WTI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. WTI has a current ratio of 1.20 compared to 2.80 for BBG. This means that BBG can more easily cover its most immediate liabilities over the next twelve months.
WTI trades at a forward P/E of 9.76, and a P/S of 0.97, compared to a P/B of 0.98, and a P/S of 2.26 for BBG. 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”. WTI is currently priced at a 31.6% to its one-year price target of 2.50. Comparatively, BBG is 7.7% relative to its price target of 6.23. This suggests that BBG 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 3.30 for WTI and 2.40 for BBG, which implies that analysts are more bullish on the outlook for WTI.
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. WTI has a beta of 2.50 and BBG’s beta is 3.51. WTI’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.WTI has a short ratio of 2.24 compared to a short interest of 5.98 for BBG. This implies that the market is currently less bearish on the outlook for WTI.
W&T Offshore, Inc. (NYSE:WTI) beats Bill Barrett Corporation (NYSE:BBG) on a total of 8 of the 14 factors compared between the two stocks. WTI is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, WTI is the cheaper of the two stocks on book value and sales basis, Finally, WTI has better sentiment signals based on short interest.