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Comparing Valuation And Performance: Whiting Petroleum Corporation (WLL), Teekay Tankers Ltd. (TNK)

The shares of Whiting Petroleum Corporation have decreased by more than -9.89% this year alone. The shares recently went up by 5.25% or $1.19 and now trades at $23.86. The shares of Teekay Tankers Ltd. (NYSE:TNK), has slumped by -14.29% year to date as of 02/14/2018. The shares currently trade at $1.20 and have been able to report a change of 5.26% over the past one week.

The stock of Whiting Petroleum Corporation and Teekay Tankers Ltd. 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: 21.20% versus -13.34% 

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 WLL will grow it’s earning at a 21.20% annual rate in the next 5 years. This is in contrast to TNK which will have a positive growth at a -13.34% annual rate. This means that the higher growth rate of WLL 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. WLL has an EBITDA margin of 31.35%, this implies that the underlying business of WLL is more profitable. The ROI of WLL is -9.00% while that of TNK is 4.60%. These figures suggest that TNK ventures generate a higher ROI than that of WLL.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, WLL’s free cash flow per share is a negative -17.89.

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 WLL is 0.60 and that of TNK is 0.70. This implies that it is easier for WLL to cover its immediate obligations over the next 12 months than TNK. The debt ratio of WLL is 0.62 compared to 0.92 for TNK. TNK can be able to settle its long-term debts and thus is a lower financial risk than WLL.

Valuation

WLL currently trades at a P/B of 0.46, and a P/S of 1.61 while TNK trades at a forward P/E of 17.65, a P/B of 0.25, and a P/S of 0.73. This means that looking at the earnings, book values and sales basis, TNK 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 WLL is currently at a -30.48% to its one-year price target of 34.32. Looking at its rival pricing, TNK is at a -40.59% relative to its price target of 2.02. This figure implies that over the next one year, TNK 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), WLL is given a 2.60 while 2.80 placed for TNK. This means that analysts are more bullish on the outlook for TNK 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 WLL is 2.39 while that of TNK is just 5.54. This means that analysts are more bullish on the forecast for WLL stock.

Conclusion

The stock of Whiting Petroleum Corporation defeats that of Teekay Tankers Ltd. when the two are compared, with WLL taking 6 out of the total factors that were been considered. WLL 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, WLL is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for WLL is better on when it is viewed on short interest.

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