Denbury Resources Inc. (NYSE:DNR) shares are up more than 33.94% this year and recently increased 0.34% or $0.01 to settle at $2.96. FireEye, Inc. (NASDAQ:FEYE), on the other hand, is up 33.59% year to date as of 04/16/2018. It currently trades at $18.97 and has returned 10.87% during the past week.
Denbury Resources Inc. (NYSE:DNR) and FireEye, Inc. (NASDAQ:FEYE) are the two most active stocks in the Independent Oil & Gas 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
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. Comparatively, FEYE is expected to grow at a 15.00% annual rate. All else equal, FEYE’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. Denbury Resources Inc. (DNR) has an EBITDA margin of 31.83%. This suggests that DNR underlying business is more profitable DNR’s ROI is 5.60% while FEYE has a ROI of -17.30%. The interpretation is that DNR’s business generates a higher return on investment than FEYE’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. DNR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, FEYE’s free cash flow per share was +0.09. On a percent-of-sales basis, DNR’s free cash flow was 2.85% while FEYE converted 0% of its revenues into cash flow. This means that, for a given level of sales, DNR 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. DNR has a current ratio of 0.40 compared to 1.90 for FEYE. This means that FEYE can more easily cover its most immediate liabilities over the next twelve months. DNR’s debt-to-equity ratio is 4.76 versus a D/E of 1.05 for FEYE. DNR is therefore the more solvent of the two companies, and has lower financial risk.Valuation
DNR trades at a forward P/E of 5.10, a P/B of 1.79, and a P/S of 1.06, compared to a forward P/E of 121.60, a P/B of 4.65, and a P/S of 4.85 for FEYE. DNR 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
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. DNR is currently priced at a 15.18% to its one-year price target of 2.57. Comparatively, FEYE is 5.16% relative to its price target of 18.04. This suggests that FEYE is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. DNR has a beta of 3.18 and FEYE’s beta is 0.38. FEYE’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. DNR has a short ratio of 8.54 compared to a short interest of 6.00 for FEYE. This implies that the market is currently less bearish on the outlook for FEYE.Summary
FireEye, Inc. (NASDAQ:FEYE) beats Denbury Resources Inc. (NYSE:DNR) on a total of 8 of the 14 factors compared between the two stocks. FEYE is more profitable, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, DNR is the cheaper of the two stocks on an earnings, book value and sales basis, FEYE is more undervalued relative to its price target. Finally, FEYE has better sentiment signals based on short interest.