QEP Resources, Inc. (NYSE:QEP) shares are down more than -7.31% this year and recently increased 1.26% or $0.11 to settle at $8.87. Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), on the other hand, is down -30.17% year to date as of 03/20/2018. It currently trades at $14.86 and has returned -3.19% during the past week.
QEP Resources, Inc. (NYSE:QEP) and Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, CRZO is expected to grow at a 20.00% annual rate. All else equal, CRZO’s higher growth rate would imply a greater potential for capital appreciation.
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. EBITDA margin of 47.91% for Carrizo Oil & Gas, Inc. (CRZO). QEP’s ROI is 6.30% while CRZO has a ROI of 11.50%. The interpretation is that CRZO’s business generates a higher return on investment than QEP’s.
If there’s one thing investors care more about than earnings, it’s cash flow. QEP’s free cash flow (“FCF”) per share for the trailing twelve months was -3.93. Comparatively, CRZO’s free cash flow per share was -1.08. On a percent-of-sales basis, QEP’s free cash flow was -58.31% while CRZO converted -0.01% 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 measure a company’s ability to meet short-term obligations and longer-term debts. QEP has a current ratio of 0.30 compared to 0.30 for CRZO. This means that QEP can more easily cover its most immediate liabilities over the next twelve months. QEP’s debt-to-equity ratio is 0.58 versus a D/E of 4.39 for CRZO. CRZO is therefore the more solvent of the two companies, and has lower financial risk.
QEP trades at a P/B of 0.56, and a P/S of 1.31, compared to a forward P/E of 4.60, a P/B of 3.27, and a P/S of 1.60 for CRZO. QEP 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”. QEP is currently priced at a -35.3% to its one-year price target of 13.71. Comparatively, CRZO is -44.51% relative to its price target of 26.78. 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 2.20 for QEP and 2.00 for CRZO, which implies that analysts are more bullish on the outlook for QEP.
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. QEP has a beta of 1.71 and CRZO’s beta is 2.28. QEP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. QEP has a short ratio of 3.68 compared to a short interest of 3.57 for CRZO. This implies that the market is currently less bearish on the outlook for CRZO.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) beats QEP Resources, Inc. (NYSE:QEP) on a total of 8 of the 14 factors compared between the two stocks. CRZO higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, QEP is the cheaper of the two stocks on an earnings, book value and sales basis, CRZO is more undervalued relative to its price target. Finally, CRZO has better sentiment signals based on short interest.