Gran Tierra Energy Inc. (NYSE:GTE) shares are up more than 23.70% this year and recently increased 4.05% or $0.13 to settle at $3.34. Synergy Pharmaceuticals Inc. (NASDAQ:SGYP), on the other hand, is down -25.11% year to date as of 09/11/2018. It currently trades at $1.67 and has returned -8.24% during the past week.
Gran Tierra Energy Inc. (NYSE:GTE) and Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) 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 GTE to grow earnings at a 10.00% 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. Gran Tierra Energy Inc. (GTE) has an EBITDA margin of 21.37%. This suggests that GTE underlying business is more profitable GTE’s ROI is -2.70% while SGYP has a ROI of -201.10%. The interpretation is that GTE’s business generates a higher return on investment than SGYP’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, GTE’s free cash flow was 0% while SGYP converted -0.22% of its revenues into cash flow. This means that, for a given level of sales, GTE 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. GTE has a current ratio of 1.80 compared to 2.80 for SGYP. This means that SGYP can more easily cover its most immediate liabilities over the next twelve months.Valuation
GTE trades at a forward P/E of 8.35, a P/B of 1.34, and a P/S of 2.43, compared to a P/S of 11.97 for SGYP. GTE is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. GTE is currently priced at a -29.39% to its one-year price target of 4.73. Comparatively, SGYP is -73.24% relative to its price target of 6.24. This suggests that SGYP 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. GTE has a beta of 0.62 and SGYP’s beta is 1.26. GTE’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. GTE has a short ratio of 3.81 compared to a short interest of 21.61 for SGYP. This implies that the market is currently less bearish on the outlook for GTE.Summary
Gran Tierra Energy Inc. (NYSE:GTE) beats Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) on a total of 9 of the 14 factors compared between the two stocks. GTE is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, GTE has better sentiment signals based on short interest.