Earnings

Range Resources Corporation (RRC) vs. Colony NorthStar, Inc. (CLNS): Comparing the Independent Oil & Gas Industry’s Most Active Stocks

Range Resources Corporation (NYSE:RRC) shares are down more than -22.98% this year and recently increased 3.22% or $0.41 to settle at $13.14. Colony NorthStar, Inc. (NYSE:CLNS), on the other hand, is down -27.26% year to date as of 02/14/2018. It currently trades at $8.30 and has returned -4.60% during the past week.

Range Resources Corporation (NYSE:RRC) and Colony NorthStar, Inc. (NYSE:CLNS) are the two most active stocks in the market 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.

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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 63.58% for Colony NorthStar, Inc. (CLNS). RRC’s ROI is -0.90% while CLNS has a ROI of 0.80%. The interpretation is that CLNS’s business generates a higher return on investment than RRC’s.



Cash Flow 

The amount of free cash flow available to investors is ultimately what determines the value of a stock. RRC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.52. Comparatively, CLNS’s free cash flow per share was -. On a percent-of-sales basis, RRC’s free cash flow was -11.74% while CLNS converted 0% of its revenues into cash flow. This means that, for a given level of sales, CLNS is able to generate more free cash flow for investors.

Liquidity and Financial Risk




RRC’s debt-to-equity ratio is 0.72 versus a D/E of 1.52 for CLNS. CLNS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RRC trades at a forward P/E of 15.42, a P/B of 0.58, and a P/S of 1.46, compared to a forward P/E of 65.35, a P/B of 0.61, and a P/S of 2.06 for CLNS. RRC is the cheaper 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”. RRC is currently priced at a -45.32% to its one-year price target of 24.03. Comparatively, CLNS is -41.34% relative to its price target of 14.15. This suggests that RRC 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 2.30 for RRC and 2.20 for CLNS, which implies that analysts are more bullish on the outlook for RRC.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. RRC has a beta of 0.71 and CLNS’s beta is 1.01. RRC’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.RRC has a short ratio of 5.01 compared to a short interest of 2.06 for CLNS. This implies that the market is currently less bearish on the outlook for CLNS.

Summary

Range Resources Corporation (NYSE:RRC) beats Colony NorthStar, Inc. (NYSE:CLNS) on a total of 7 of the 14 factors compared between the two stocks. RRC higher liquidity and has lower financial risk. In terms of valuation, RRC is the cheaper of the two stocks on an earnings, book value and sales basis, RRC is more undervalued relative to its price target. Finally, VRX has better sentiment signals based on short interest.

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