The shares of Obsidian Energy Ltd. have decreased by more than -18.55% this year alone. The shares recently went up by 7.47% or $0.07 and now trades at $1.01. The shares of Babcock & Wilcox Enterprises, Inc. (NYSE:BW), has jumped by 21.13% year to date as of 02/14/2018. The shares currently trade at $6.88 and have been able to report a change of 21.13% over the past one week.
The stock of Obsidian Energy Ltd. and Babcock & Wilcox Enterprises, Inc. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.
Next 5Y EPS Growth: 9.30% versus 12.50%
When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that OBE will grow it’s earning at a 9.30% annual rate in the next 5 years. This is in contrast to BW which will have a positive growth at a 12.50% annual rate. This means that the higher growth rate of BW implies a greater potential for capital appreciation over the years.
Profitability and Returns
Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of OBE is -25.30% while that of BW is -19.40%. These figures suggest that BW ventures generate a higher ROI than that of OBE.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, OBE’s free cash flow per share is a positive 0, while that of BW is negative -4.36.
Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for OBE is 0.70 and that of BW is 1.20. This implies that it is easier for OBE to cover its immediate obligations over the next 12 months than BW. The debt ratio of OBE is 0.16 compared to 0.73 for BW. BW can be able to settle its long-term debts and thus is a lower financial risk than OBE.
OBE currently trades at a P/B of 0.29, and a P/S of 1.58 while BW trades at a forward P/E of 38.65, a P/B of 1.11, and a P/S of 0.21. This means that looking at the earnings, book values and sales basis, OBE is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.
Analyst Price Targets and Opinions
The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of OBE is currently at a -31.76% to its one-year price target of 1.48. Looking at its rival pricing, BW is at a 10.97% relative to its price target of 6.20. This figure implies that over the next one year, BW is a better investment.
When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), OBE is given a 2.60 while 3.00 placed for BW. This means that analysts are more bullish on the outlook for BW stocks.
Insider Activity and Investor Sentiment
Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for OBE is 5.82 while that of BW is just 7.44. This means that analysts are more bullish on the forecast for OBE stock.
The stock of Babcock & Wilcox Enterprises, Inc. defeats that of Obsidian Energy Ltd. when the two are compared, with BW taking 5 out of the total factors that were been considered. BW happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, BW is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for BW is better on when it is viewed on short interest.