Nabors Industries Ltd. (NYSE:NBR) shares are up more than 26.06% this year and recently increased 2.62% or $0.22 to settle at $8.61. R.R. Donnelley & Sons Company (NYSE:RRD), on the other hand, is down -28.71% year to date as of 05/17/2018. It currently trades at $6.63 and has returned -0.75% during the past week.
Nabors Industries Ltd. (NYSE:NBR) and R.R. Donnelley & Sons Company (NYSE:RRD) are the two most active stocks in the Oil & Gas Drilling & Exploration 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, RRD is expected to grow at a -5.00% 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. EBITDA margin of 4.22% for R.R. Donnelley & Sons Company (RRD). NBR’s ROI is -1.70% while RRD has a ROI of 11.00%. The interpretation is that RRD’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. NBR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.62. Comparatively, RRD’s free cash flow per share was -2.44. On a percent-of-sales basis, NBR’s free cash flow was -7.67% while RRD converted -2.47% of its revenues into cash flow. This means that, for a given level of sales, RRD 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. NBR has a current ratio of 1.90 compared to 1.40 for RRD. This means that NBR can more easily cover its most immediate liabilities over the next twelve months.Valuation
NBR trades at a P/B of 0.98, and a P/S of 1.19, compared to a forward P/E of 6.63, and a P/S of 0.07 for RRD. NBR 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. NBR is currently priced at a -7.42% to its one-year price target of 9.30. Comparatively, RRD is -44.75% relative to its price target of 12.00. This suggests that RRD 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. NBR has a beta of 1.60 and RRD’s beta is 1.57. RRD’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. NBR has a short ratio of 4.06 compared to a short interest of 3.48 for RRD. This implies that the market is currently less bearish on the outlook for RRD.Summary
R.R. Donnelley & Sons Company (NYSE:RRD) beats Nabors Industries Ltd. (NYSE:NBR) on a total of 10 of the 14 factors compared between the two stocks. RRD is growing fastly, generates a higher return on investment, has a higher cash conversion rate and has lower financial risk. In terms of valuation, RRD is the cheaper of the two stocks on book value and sales basis, RRD is more undervalued relative to its price target. Finally, RRD has better sentiment signals based on short interest.