Whiting Petroleum Corporation (NYSE:WLL) shares are down more than -46.19% this year and recently increased 0.51% or $0.13 to settle at $25.87. Patterson-UTI Energy, Inc. (NASDAQ:PTEN), on the other hand, is down -23.55% year to date as of 11/13/2017. It currently trades at $20.58 and has returned -2.09% during the past week.
Whiting Petroleum Corporation (NYSE:WLL) and Patterson-UTI Energy, Inc. (NASDAQ:PTEN) are the two most active stocks in the Oil & Gas Drilling & Exploration 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect WLL to grow earnings at a 25.30% annual rate over the next 5 years. Comparatively, PTEN is expected to grow at a 11.50% annual rate. All else equal, WLL’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Whiting Petroleum Corporation (WLL) has an EBITDA margin of 31.35%. This suggests that WLL underlying business is more profitable
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, WLL’s free cash flow was 0% while PTEN converted -0% of its revenues into cash flow. This means that, for a given level of sales, WLL 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. WLL has a current ratio of 0.60 compared to 1.20 for PTEN. This means that PTEN can more easily cover its most immediate liabilities over the next twelve months. WLL’s debt-to-equity ratio is 0.62 versus a D/E of 0.00 for PTEN. WLL is therefore the more solvent of the two companies, and has lower financial risk.
WLL trades at a P/B of 0.50, and a P/S of 2.07, compared to a P/B of 1.21, and a P/S of 2.53 for PTEN. 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. WLL is currently priced at a -13.8% to its one-year price target of 30.01. Comparatively, PTEN is -16.44% relative to its price target of 24.63. This suggests that PTEN 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 WLL and 2.10 for PTEN, which implies that analysts are more bullish on the outlook for WLL.
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. WLL has a beta of 3.39 and PTEN’s beta is 1.06. PTEN’s shares are therefore the less volatile of the two stocks.
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. WLL has a short ratio of 13.17 compared to a short interest of 3.07 for PTEN. This implies that the market is currently less bearish on the outlook for PTEN.
Patterson-UTI Energy, Inc. (NASDAQ:PTEN) beats Whiting Petroleum Corporation (NYSE:WLL) on a total of 6 of the 14 factors compared between the two stocks. PTEN is growing fastly and has lower financial risk. PTEN is more undervalued relative to its price target. Finally, PTEN has better sentiment signals based on short interest.