Bonanza Creek Energy Inc. (NYSE:BCEI) shares are down more than -75.58% this year and recently increased 0.07% or $0.02 to settle at $27.79. FieldPoint Petroleum Corporation (NYSE:FPP), on the other hand, is down -72.31% year to date as of 11/28/2017. It currently trades at $0.20 and has returned -38.46% during the past week.
Bonanza Creek Energy Inc. (NYSE:BCEI) and FieldPoint Petroleum Corporation (NYSE:FPP) are the two most active stocks in the Independent Oil & Gas 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.
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 BCEI to grow earnings at a 15.00% annual rate over the next 5 years.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 88.3% for FieldPoint Petroleum Corporation (FPP). BCEI’s ROI is -12.30% while FPP has a ROI of -41.00%. The interpretation is that BCEI’s business generates a higher return on investment than FPP’s.
Cash is king when it comes to investing. On a percent-of-sales basis, BCEI’s free cash flow was -0.01% while FPP converted 0% of its revenues into cash flow. This means that, for a given level of sales, FPP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. BCEI has a current ratio of 1.00 compared to 0.20 for FPP. This means that BCEI can more easily cover its most immediate liabilities over the next twelve months. BCEI’s debt-to-equity ratio is 0.00 versus a D/E of 8.80 for FPP. FPP is therefore the more solvent of the two companies, and has lower financial risk.
BCEI trades at a forward P/E of 22.00, a P/B of 0.82, and a P/S of 3.40, compared to a P/B of 5.00, and a P/S of 0.81 for FPP. BCEI 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. BCEI is currently priced at a -17.34% to its one-year price target of 33.62. Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. BCEI has a beta of 2.11 and FPP’s beta is 1.82. FPP’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. BCEI has a short ratio of 1.96 compared to a short interest of 0.09 for FPP. This implies that the market is currently less bearish on the outlook for FPP.
FieldPoint Petroleum Corporation (NYSE:FPP) beats Bonanza Creek Energy Inc. (NYSE:BCEI) on a total of 8 of the 13 factors compared between the two stocks. FPP is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, FPP is the cheaper of the two stocks on an earnings and sales basis, Finally, FPP has better sentiment signals based on short interest.