Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) shares are down more than -27.87% this year and recently decreased -0.07% or -$0.01 to settle at $15.35. NiSource Inc. (NYSE:NI), on the other hand, is down -9.86% year to date as of 03/13/2018. It currently trades at $23.14 and has returned -0.30% during the past week.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) and NiSource Inc. (NYSE:NI) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CRZO to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, NI is expected to grow at a 5.67% annual rate. All else equal, CRZO’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 21.49% for NiSource Inc. (NI). CRZO’s ROI is 11.50% while NI has a ROI of 3.60%. The interpretation is that CRZO’s business generates a higher return on investment than NI’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CRZO’s free cash flow (“FCF”) per share for the trailing twelve months was -7.94. Comparatively, NI’s free cash flow per share was -2.00. On a percent-of-sales basis, CRZO’s free cash flow was -0.09% while NI converted -13.84% of its revenues into cash flow. This means that, for a given level of sales, CRZO 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. CRZO has a current ratio of 0.30 compared to 0.60 for NI. This means that NI can more easily cover its most immediate liabilities over the next twelve months. CRZO’s debt-to-equity ratio is 4.39 versus a D/E of 2.08 for NI. CRZO is therefore the more solvent of the two companies, and has lower financial risk.
CRZO trades at a forward P/E of 4.70, a P/B of 3.37, and a P/S of 1.65, compared to a forward P/E of 16.90, a P/B of 1.81, and a P/S of 1.61 for NI. CRZO is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. CRZO is currently priced at a -44.6% to its one-year price target of 27.71. Comparatively, NI is -13.17% relative to its price target of 26.65. This suggests that CRZO 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 2.00 for CRZO and 2.20 for NI, which implies that analysts are more bullish on the outlook for NI.
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. CRZO has a beta of 2.27 and NI’s beta is 0.25. NI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CRZO has a short ratio of 3.59 compared to a short interest of 2.53 for NI. This implies that the market is currently less bearish on the outlook for NI.
NiSource Inc. (NYSE:NI) beats Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) on a total of 7 of the 14 factors compared between the two stocks. NI is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, NI is the cheaper of the two stocks on book value and sales basis, Finally, NI has better sentiment signals based on short interest.