WPX Energy, Inc. (NYSE:WPX) shares are up more than 10.02% this year and recently increased 1.57% or $0.24 to settle at $15.48. Nabors Industries Ltd. (NYSE:NBR), on the other hand, is up 9.81% year to date as of 04/16/2018. It currently trades at $7.50 and has returned 12.11% during the past week.
WPX Energy, Inc. (NYSE:WPX) and Nabors Industries Ltd. (NYSE:NBR) are the two most active stocks in the Independent Oil & Gas industry 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.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, NBR is expected to grow at a 7.00% annual rate. All else equal, NBR’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. WPX Energy, Inc. (WPX) has an EBITDA margin of 2.17%. This suggests that WPX underlying business is more profitable WPX’s ROI is 1.30% while NBR has a ROI of -1.70%. The interpretation is that WPX’s business generates a higher return on investment than NBR’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. WPX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, NBR’s free cash flow per share was -0.15. On a percent-of-sales basis, WPX’s free cash flow was -2.38% while NBR converted -1.85% of its revenues into cash flow. This means that, for a given level of sales, NBR 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. WPX has a current ratio of 0.80 compared to 1.60 for NBR. This means that NBR can more easily cover its most immediate liabilities over the next twelve months. WPX’s debt-to-equity ratio is 0.00 versus a D/E of 1.38 for NBR. NBR is therefore the more solvent of the two companies, and has lower financial risk.Valuation
WPX trades at a forward P/E of 38.03, a P/B of 1.58, and a P/S of 4.61, compared to a P/B of 0.74, and a P/S of 0.92 for NBR. WPX is the expensive 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”. WPX is currently priced at a -21.42% to its one-year price target of 19.70. Comparatively, NBR is -18.21% relative to its price target of 9.17. This suggests that WPX 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. WPX has a beta of 2.30 and NBR’s beta is 1.63. NBR’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. WPX has a short ratio of 4.55 compared to a short interest of 4.74 for NBR. This implies that the market is currently less bearish on the outlook for WPX.Summary
Nabors Industries Ltd. (NYSE:NBR) beats WPX Energy, Inc. (NYSE:WPX) on a total of 7 of the 14 factors compared between the two stocks. NBR is more profitable, has a higher cash conversion rate and higher liquidity. In terms of valuation, NBR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, NEM has better sentiment signals based on short interest.