Antero Resources Corporation (NYSE:AR) shares are up more than 8.53% this year and recently decreased -0.48% or -$0.1 to settle at $20.62. Cenovus Energy Inc. (NYSE:CVE), on the other hand, is up 8.54% year to date as of 04/16/2018. It currently trades at $9.91 and has returned 6.22% during the past week.
Antero Resources Corporation (NYSE:AR) and Cenovus Energy Inc. (NYSE:CVE) are the two most active stocks in the Oil & Gas Drilling & Exploration industry 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.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect AR to grow earnings at a 35.97% annual rate over the next 5 years.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. Antero Resources Corporation (AR) has an EBITDA margin of 20.76%. This suggests that AR underlying business is more profitable AR’s ROI is 11.30% while CVE has a ROI of 1.30%. The interpretation is that AR’s business generates a higher return on investment than CVE’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. AR’s free cash flow (“FCF”) per share for the trailing twelve months was -3.58. Comparatively, CVE’s free cash flow per share was +0.22. On a percent-of-sales basis, AR’s free cash flow was -31% while CVE converted 2.06% of its revenues into cash flow. This means that, for a given level of sales, CVE is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. AR has a current ratio of 1.10 compared to 1.10 for CVE. This means that AR can more easily cover its most immediate liabilities over the next twelve months. AR’s debt-to-equity ratio is 0.59 versus a D/E of 0.00 for CVE. AR is therefore the more solvent of the two companies, and has lower financial risk.Valuation
AR trades at a forward P/E of 12.94, a P/B of 0.80, and a P/S of 1.79, compared to a forward P/E of 18.88, a P/B of 0.77, and a P/S of 0.88 for CVE. AR 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. AR is currently priced at a -16.99% to its one-year price target of 24.84. Comparatively, CVE is -8.66% relative to its price target of 10.85. This suggests that AR is the better investment over the next year.
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. AR has a beta of 0.83 and CVE’s beta is 0.73. CVE’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. AR has a short ratio of 8.43 compared to a short interest of 6.40 for CVE. This implies that the market is currently less bearish on the outlook for CVE.Summary
Cenovus Energy Inc. (NYSE:CVE) beats Antero Resources Corporation (NYSE:AR) on a total of 7 of the 14 factors compared between the two stocks. CVE is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CVE is the cheaper of the two stocks on book value and sales basis, Finally, CVE has better sentiment signals based on short interest.