WPX Energy, Inc. (NYSE:WPX) shares are up more than 1.71% this year and recently increased 0.07% or $0.01 to settle at $14.31. VEON Ltd. (NASDAQ:VEON), on the other hand, is down -29.69% year to date as of 03/13/2018. It currently trades at $2.70 and has returned -5.59% during the past week.
WPX Energy, Inc. (NYSE:WPX) and VEON Ltd. (NASDAQ:VEON) are the two most active stocks in the market 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.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. WPX Energy, Inc. (WPX) has an EBITDA margin of 2.17%. This suggests that WPX underlying business is more profitable WPX’s ROI is 1.30% while VEON has a ROI of 6.50%. The interpretation is that VEON’s business generates a higher return on investment than WPX’s.
If there’s one thing investors care more about than earnings, it’s cash flow. WPX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.58. Comparatively, VEON’s free cash flow per share was +0.17. On a percent-of-sales basis, WPX’s free cash flow was -17.26% while VEON converted 3.15% of its revenues into cash flow. This means that, for a given level of sales, VEON is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. WPX has a current ratio of 0.80 compared to 0.80 for VEON. This means that WPX can more easily cover its most immediate liabilities over the next twelve months. WPX’s debt-to-equity ratio is 0.00 versus a D/E of 2.67 for VEON. VEON is therefore the more solvent of the two companies, and has lower financial risk.
WPX trades at a forward P/E of 37.36, a P/B of 1.46, and a P/S of 4.26, compared to a forward P/E of 5.99, a P/B of 1.08, and a P/S of 0.49 for VEON. WPX 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. WPX is currently priced at a -27.18% to its one-year price target of 19.65. Comparatively, VEON is -41.56% relative to its price target of 4.62. This suggests that VEON 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 1.80 for WPX and 2.10 for VEON, which implies that analysts are more bullish on the outlook for VEON.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. WPX has a beta of 2.38 and VEON’s beta is 2.16. VEON’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. WPX has a short ratio of 4.21 compared to a short interest of 1.30 for VEON. This implies that the market is currently less bearish on the outlook for VEON.
VEON Ltd. (NASDAQ:VEON) beats WPX Energy, Inc. (NYSE:WPX) on a total of 9 of the 14 factors compared between the two stocks. VEON is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, VEON is the cheaper of the two stocks on an earnings, book value and sales basis, VEON is more undervalued relative to its price target. Finally, VEON has better sentiment signals based on short interest.