Freeport-McMoRan Inc. (NYSE:FCX) shares are down more than -4.22% this year and recently increased 1.62% or $0.29 to settle at $18.16. Superior Energy Services, Inc. (NYSE:SPN), on the other hand, is down -4.15% year to date as of 04/16/2018. It currently trades at $9.23 and has returned 12.01% during the past week.
Freeport-McMoRan Inc. (NYSE:FCX) and Superior Energy Services, Inc. (NYSE:SPN) are the two most active stocks in the Copper industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FCX to grow earnings at a 25.82% annual rate over the next 5 years.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Freeport-McMoRan Inc. (FCX) has an EBITDA margin of 23.26%. This suggests that FCX underlying business is more profitable FCX’s ROI is 11.30% while SPN has a ROI of -6.60%. The interpretation is that FCX’s business generates a higher return on investment than SPN’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. FCX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.88. Comparatively, SPN’s free cash flow per share was -0.04. On a percent-of-sales basis, FCX’s free cash flow was 7.77% while SPN converted -0.33% of its revenues into cash flow. This means that, for a given level of sales, FCX is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. FCX has a current ratio of 2.10 compared to 2.00 for SPN. This means that FCX can more easily cover its most immediate liabilities over the next twelve months. FCX’s debt-to-equity ratio is 1.64 versus a D/E of 0.00 for SPN. FCX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
FCX trades at a forward P/E of 12.64, a P/B of 3.30, and a P/S of 1.60, compared to a P/B of 1.25, and a P/S of 0.76 for SPN. FCX 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
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. FCX is currently priced at a -11.72% to its one-year price target of 20.57. Comparatively, SPN is -23.28% relative to its price target of 12.03. This suggests that SPN is the better investment over the next year.
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. FCX has a beta of 2.45 and SPN’s beta is 2.09. SPN’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. FCX has a short ratio of 1.97 compared to a short interest of 4.07 for SPN. This implies that the market is currently less bearish on the outlook for FCX.Summary
Superior Energy Services, Inc. (NYSE:SPN) beats Freeport-McMoRan Inc. (NYSE:FCX) on a total of 7 of the 14 factors compared between the two stocks. SPN is growing fastly. In terms of valuation, SPN is the cheaper of the two stocks on an earnings, book value and sales basis, SPN is more undervalued relative to its price target.