Willbros Group, Inc. (NYSE:WG) shares are down more than -57.72% this year and recently decreased -6.80% or -$0.1 to settle at $1.37. Tesco Corporation (NASDAQ:TESO), on the other hand, is down -49.70% year to date as of 11/13/2017. It currently trades at $4.15 and has returned -1.19% during the past week.
Willbros Group, Inc. (NYSE:WG) and Tesco Corporation (NASDAQ:TESO) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect WG to grow earnings at a 5.00% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. WG’s ROI is -13.50% while TESO has a ROI of -37.00%. The interpretation is that WG’s business generates a higher return on investment than TESO’s.
Cash is king when it comes to investing. WG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.38. Comparatively, TESO’s free cash flow per share was -0.17. On a percent-of-sales basis, WG’s free cash flow was -0% while TESO converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, WG 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. WG has a current ratio of 1.30 compared to 5.60 for TESO. This means that TESO can more easily cover its most immediate liabilities over the next twelve months. WG’s debt-to-equity ratio is 1.17 versus a D/E of 0.00 for TESO. WG is therefore the more solvent of the two companies, and has lower financial risk.
WG trades at a forward P/E of 31.86, a P/B of 0.99, and a P/S of 0.11, compared to a P/B of 0.71, and a P/S of 1.26 for TESO. WG is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. WG is currently priced at a 1.48% to its one-year price target of 1.35. Comparatively, TESO is -27.45% relative to its price target of 5.72. This suggests that TESO 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 3.50 for WG and 2.50 for TESO, which implies that analysts are more bullish on the outlook for WG.
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. WG has a beta of 3.42 and TESO’s beta is 1.15. TESO’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.WG has a short ratio of 1.02 compared to a short interest of 3.64 for TESO. This implies that the market is currently less bearish on the outlook for WG.
Tesco Corporation (NASDAQ:TESO) beats Willbros Group, Inc. (NYSE:WG) on a total of 8 of the 14 factors compared between the two stocks. TESO is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, TESO is the cheaper of the two stocks on an earnings and book value, TESO is more undervalued relative to its price target. Finally, FTK has better sentiment signals based on short interest.