NGL Energy Partners LP (NYSE:NGL) shares are down more than -40.71% this year and recently decreased -1.97% or -$0.25 to settle at $12.45. Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT), on the other hand, is up 101.25% year to date as of 11/13/2017. It currently trades at $8.05 and has returned -17.86% during the past week.
NGL Energy Partners LP (NYSE:NGL) and Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect NGL to grow earnings at a 1.00% annual rate over the next 5 years. Comparatively, CLMT is expected to grow at a 10.00% annual rate. All else equal, CLMT’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 6.62% for Calumet Specialty Products Partners, L.P. (CLMT). NGL’s ROI is 5.10% while CLMT has a ROI of -7.50%. The interpretation is that NGL’s business generates a higher return on investment than CLMT’s.
Cash is king when it comes to investing. NGL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.58. Comparatively, CLMT’s free cash flow per share was -0.10. On a percent-of-sales basis, NGL’s free cash flow was -0.54% while CLMT converted -0.21% of its revenues into cash flow. This means that, for a given level of sales, CLMT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. NGL has a current ratio of 1.60 compared to 1.40 for CLMT. This means that NGL can more easily cover its most immediate liabilities over the next twelve months. NGL’s debt-to-equity ratio is 1.67 versus a D/E of 9.57 for CLMT. CLMT is therefore the more solvent of the two companies, and has lower financial risk.
NGL trades at a forward P/E of 83.00, a P/B of 0.83, and a P/S of 0.10, compared to a P/B of 3.00, and a P/S of 0.17 for CLMT. 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 -8.46% to its one-year price target of 13.60. Comparatively, CLMT is 0.63% relative to its price target of 8.00. 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 2.40 for NGL and 2.80 for CLMT, which implies that analysts are more bullish on the outlook for CLMT.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NGL has a beta of 0.60 and CLMT’s beta is 1.23. NGL’s shares are therefore the less volatile of the two stocks.
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. NGL has a short ratio of 2.34 compared to a short interest of 1.20 for CLMT. This implies that the market is currently less bearish on the outlook for CLMT.
NGL Energy Partners LP (NYSE:NGL) beats Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) on a total of 8 of the 14 factors compared between the two stocks. NGL generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, NGL is the cheaper of the two stocks on book value and sales basis, NGL is more undervalued relative to its price target. Finally, GPK has better sentiment signals based on short interest.