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Choosing Between Ultra Petroleum Corp. (UPL) and Superior Energy Services, Inc. (SPN)

Ultra Petroleum Corp. (NASDAQ:UPL) shares are down more than -86.42% this year and recently increased 3.36% or $0.04 to settle at $1.23. Superior Energy Services, Inc. (NYSE:SPN), on the other hand, is down -9.03% year to date as of 09/11/2018. It currently trades at $8.76 and has returned -0.23% during the past week.

Ultra Petroleum Corp. (NASDAQ:UPL) and Superior Energy Services, Inc. (NYSE:SPN) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

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 UPL to grow earnings at a 20.40% 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. Ultra Petroleum Corp. (UPL) has an EBITDA margin of 34.94%. This suggests that UPL underlying business is more profitable UPL’s ROI is 52.00% while SPN has a ROI of -6.60%. The interpretation is that UPL’s business generates a higher return on investment than SPN’s.

Cash Flow



Cash is king when it comes to investing. UPL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.32. Comparatively, SPN’s free cash flow per share was +0.07. On a percent-of-sales basis, UPL’s free cash flow was -0.01% while SPN converted 0.58% of its revenues into cash flow. This means that, for a given level of sales, SPN is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. UPL has a current ratio of 0.50 compared to 2.00 for SPN. This means that SPN can more easily cover its most immediate liabilities over the next twelve months.

Valuation

UPL trades at a forward P/E of 2.24, and a P/S of 0.29, compared to a P/B of 1.28, and a P/S of 0.67 for SPN. 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. UPL is currently priced at a -45.33% to its one-year price target of 2.25. Comparatively, SPN is -25.76% relative to its price target of 11.80. This suggests that UPL is the better investment over the next year.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. UPL has a short ratio of 9.61 compared to a short interest of 3.67 for SPN. This implies that the market is currently less bearish on the outlook for SPN.

Summary




Superior Energy Services, Inc. (NYSE:SPN) beats Ultra Petroleum Corp. (NASDAQ:UPL) on a total of 7 of the 14 factors compared between the two stocks. SPN is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, SPN has better sentiment signals based on short interest.

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