PBF Energy Inc. (NYSE:PBF) shares are down more than -13.60% this year and recently increased 0.20% or $0.06 to settle at $30.63. Sanchez Energy Corporation (NYSE:SN), on the other hand, is down -40.49% year to date as of 03/13/2018. It currently trades at $3.16 and has returned 0.96% during the past week.
PBF Energy Inc. (NYSE:PBF) and Sanchez Energy Corporation (NYSE:SN) 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 in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 31.03% for Sanchez Energy Corporation (SN). PBF’s ROI is 8.10% while SN has a ROI of -8.90%. The interpretation is that PBF’s business generates a higher return on investment than SN’s.
The value of a stock is simply the present value of its future free cash flows. PBF’s free cash flow (“FCF”) per share for the trailing twelve months was -0.84. Comparatively, SN’s free cash flow per share was -0.48. On a percent-of-sales basis, PBF’s free cash flow was -0.43% while SN converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, SN 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. PBF has a current ratio of 1.60 compared to 0.80 for SN. This means that PBF can more easily cover its most immediate liabilities over the next twelve months.
PBF trades at a forward P/E of 8.05, a P/B of 1.44, and a P/S of 0.16, compared to a forward P/E of 3.83, and a P/S of 0.36 for SN. PBF is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
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. PBF is currently priced at a -16.74% to its one-year price target of 36.79. Comparatively, SN is -44.37% relative to its price target of 5.68. This suggests that SN 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 2.80 for PBF and 2.80 for SN, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PBF has a beta of 1.30 and SN’s beta is 1.86. PBF’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. PBF has a short ratio of 4.01 compared to a short interest of 6.79 for SN. This implies that the market is currently less bearish on the outlook for PBF.
Sanchez Energy Corporation (NYSE:SN) beats PBF Energy Inc. (NYSE:PBF) on a total of 7 of the 14 factors compared between the two stocks. SN generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, SN is the cheaper of the two stocks on an earnings and book value, SN is more undervalued relative to its price target. Finally, HRG has better sentiment signals based on short interest.