CenterPoint Energy, Inc. (NYSE:CNP) shares are down more than -3.28% this year and recently increased 0.62% or $0.17 to settle at $27.43. Clean Energy Fuels Corp. (NASDAQ:CLNE), on the other hand, is up 7.39% year to date as of 01/10/2018. It currently trades at $2.18 and has returned 4.31% during the past week.
CenterPoint Energy, Inc. (NYSE:CNP) and Clean Energy Fuels Corp. (NASDAQ:CLNE) are the two most active stocks in the Gas Utilities industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
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 CNP to grow earnings at a 7.58% annual rate over the next 5 years. Comparatively, CLNE is expected to grow at a 25.00% annual rate. All else equal, CLNE’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. , compared to an EBITDA margin of 2.53% for Clean Energy Fuels Corp. (CLNE). CNP’s ROI is 5.50% while CLNE has a ROI of 2.00%. The interpretation is that CNP’s business generates a higher return on investment than CLNE’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CNP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, CLNE’s free cash flow per share was -0.09. On a percent-of-sales basis, CNP’s free cash flow was -0.46% while CLNE converted -0% of its revenues into cash flow. This means that, for a given level of sales, CLNE 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. CNP has a current ratio of 0.90 compared to 3.50 for CLNE. This means that CLNE can more easily cover its most immediate liabilities over the next twelve months. CNP’s debt-to-equity ratio is 2.61 versus a D/E of 0.58 for CLNE. CNP is therefore the more solvent of the two companies, and has lower financial risk.
CNP trades at a forward P/E of 19.18, a P/B of 3.27, and a P/S of 1.31, compared to a P/B of 0.74, and a P/S of 0.93 for CLNE. CNP is the expensive of the two stocks on an earnings, book value and sales basis. 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”. CNP is currently priced at a -4.95% to its one-year price target of 28.86. Comparatively, CLNE is -72.75% relative to its price target of 8.00. This suggests that CLNE 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 2.90 for CNP and 2.50 for CLNE, which implies that analysts are more bullish on the outlook for CNP.
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. CNP has a beta of 0.59 and CLNE’s beta is 1.89. CNP’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. CNP has a short ratio of 3.34 compared to a short interest of 4.78 for CLNE. This implies that the market is currently less bearish on the outlook for CNP.
Clean Energy Fuels Corp. (NASDAQ:CLNE) beats CenterPoint Energy, Inc. (NYSE:CNP) on a total of 9 of the 14 factors compared between the two stocks. CLNE is more profitable, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CLNE is the cheaper of the two stocks on an earnings, book value and sales basis, CLNE is more undervalued relative to its price target. Finally, VMC has better sentiment signals based on short interest.