Finance

Critical Comparison: Riot Blockchain, Inc. (RIOT) vs. PDC Energy, Inc. (PDCE)

Riot Blockchain, Inc. (NASDAQ:RIOT) shares are down more than -72.71% this year and recently increased 3.75% or $0.28 to settle at $7.75. PDC Energy, Inc. (NASDAQ:PDCE), on the other hand, is up 3.16% year to date as of 04/13/2018. It currently trades at $53.17 and has returned 16.78% during the past week.

Riot Blockchain, Inc. (NASDAQ:RIOT) and PDC Energy, Inc. (NASDAQ:PDCE) are the two most active stocks in the Capital Markets industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect RIOT to grow earnings at a 20.00% annual rate over the next 5 years. Comparatively, PDCE is expected to grow at a 38.40% annual rate. All else equal, PDCE’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 11.99% for PDC Energy, Inc. (PDCE).

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. RIOT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, PDCE’s free cash flow per share was -0.27. On a percent-of-sales basis, RIOT’s free cash flow was -1.32% while PDCE converted -0% of its revenues into cash flow. This means that, for a given level of sales, PDCE is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. RIOT has a current ratio of 15.10 compared to 1.00 for PDCE. This means that RIOT can more easily cover its most immediate liabilities over the next twelve months. RIOT’s debt-to-equity ratio is 0.02 versus a D/E of 0.46 for PDCE. PDCE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RIOT trades at a P/B of 3.93, and a P/S of 10452.95, compared to a forward P/E of 13.23, a P/B of 1.40, and a P/S of 3.80 for PDCE. RIOT 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. RIOT is currently priced at a 93.75% to its one-year price target of 4.00. Comparatively, PDCE is -22.12% relative to its price target of 68.27. This suggests that PDCE is the better investment over the next year.

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. RIOT has a beta of 3.03 and PDCE’s beta is 0.68. PDCE’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. RIOT has a short ratio of 1.40 compared to a short interest of 6.36 for PDCE. This implies that the market is currently less bearish on the outlook for RIOT.

Summary

PDC Energy, Inc. (NASDAQ:PDCE) beats Riot Blockchain, Inc. (NASDAQ:RIOT) on a total of 8 of the 14 factors compared between the two stocks. PDCE generates a higher return on investment, is more profitable and has a higher cash conversion rate. In terms of valuation, PDCE is the cheaper of the two stocks on book value and sales basis, PDCE is more undervalued relative to its price target. Finally, MFGP has better sentiment signals based on short interest.

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