Finance

Laredo Petroleum, Inc. (LPI) vs. Organovo Holdings, Inc. (ONVO): Breaking Down the Independent Oil & Gas Industry’s Two Hottest Stocks

Laredo Petroleum, Inc. (NYSE:LPI) shares are down more than -5.94% this year and recently increased 2.36% or $0.23 to settle at $9.98. Organovo Holdings, Inc. (NASDAQ:ONVO), on the other hand, is up 29.85% year to date as of 05/17/2018. It currently trades at $1.74 and has returned 30.83% during the past week.

Laredo Petroleum, Inc. (NYSE:LPI) and Organovo Holdings, Inc. (NASDAQ:ONVO) are the two most active stocks in the Independent Oil & Gas 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect LPI to grow earnings at a 29.07% annual rate over the next 5 years.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Laredo Petroleum, Inc. (LPI) has an EBITDA margin of 95.86%. This suggests that LPI underlying business is more profitable LPI’s ROI is 14.40% while ONVO has a ROI of -61.90%. The interpretation is that LPI’s business generates a higher return on investment than ONVO’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. LPI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, ONVO’s free cash flow per share was -0.06. On a percent-of-sales basis, LPI’s free cash flow was -0.01% while ONVO converted -0.16% of its revenues into cash flow. This means that, for a given level of sales, LPI 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. LPI has a current ratio of 0.80 compared to 11.70 for ONVO. This means that ONVO can more easily cover its most immediate liabilities over the next twelve months. LPI’s debt-to-equity ratio is 0.90 versus a D/E of 0.00 for ONVO. LPI is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

LPI trades at a forward P/E of 7.81, a P/B of 2.53, and a P/S of 2.71, compared to a P/B of 3.87, and a P/S of 43.44 for ONVO. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. LPI is currently priced at a -14.55% to its one-year price target of 11.68. Comparatively, ONVO is -22.67% relative to its price target of 2.25. This suggests that ONVO 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. LPI has a beta of 1.15 and ONVO’s beta is 2.73. LPI’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. LPI has a short ratio of 8.29 compared to a short interest of 15.41 for ONVO. This implies that the market is currently less bearish on the outlook for LPI.

Summary

Laredo Petroleum, Inc. (NYSE:LPI) beats Organovo Holdings, Inc. (NASDAQ:ONVO) on a total of 8 of the 14 factors compared between the two stocks. LPI is growing fastly, is more profitable, generates a higher return on investment and has a higher cash conversion rate. In terms of valuation, LPI is the cheaper of the two stocks on book value and sales basis, Finally, LPI has better sentiment signals based on short interest.

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