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Critical Comparison: California Resources Corporation (CRC) vs. Castlight Health, Inc. (CSLT)

California Resources Corporation (NYSE:CRC) shares are up more than 94.34% this year and recently increased 5.56% or $1.99 to settle at $37.78. Castlight Health, Inc. (NYSE:CSLT), on the other hand, is down -18.67% year to date as of 09/11/2018. It currently trades at $3.05 and has returned 1.67% during the past week.

California Resources Corporation (NYSE:CRC) and Castlight Health, Inc. (NYSE:CSLT) 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, CSLT is expected to grow at a 30.00% annual rate. All else equal, CSLT’s higher growth rate would imply a greater potential for capital appreciation.

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 Return on Investment (ROI) to measure this. CRC’s ROI is 1.50% while CSLT has a ROI of -51.10%. The interpretation is that CRC’s business generates a higher return on investment than CSLT’s.

Cash Flow



Cash is king when it comes to investing. CRC’s free cash flow (“FCF”) per share for the trailing twelve months was -3.20. Comparatively, CSLT’s free cash flow per share was -0.01. On a percent-of-sales basis, CRC’s free cash flow was -7.71% while CSLT converted -0% of its revenues into cash flow. This means that, for a given level of sales, CSLT 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. CRC has a current ratio of 0.60 compared to 1.90 for CSLT. This means that CSLT can more easily cover its most immediate liabilities over the next twelve months.

Valuation

CRC trades at a forward P/E of 65.48, and a P/S of 0.89, compared to a forward P/E of 508.33, a P/B of 2.13, and a P/S of 2.88 for CSLT. CRC is the cheaper 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. CRC is currently priced at a -16.66% to its one-year price target of 45.33. Comparatively, CSLT is -39.48% relative to its price target of 5.04. This suggests that CSLT is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. CRC has a beta of 5.72 and CSLT’s beta is 1.10. CSLT’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CRC has a short ratio of 3.94 compared to a short interest of 3.41 for CSLT. This implies that the market is currently less bearish on the outlook for CSLT.

Summary

Castlight Health, Inc. (NYSE:CSLT) beats California Resources Corporation (NYSE:CRC) on a total of 8 of the 14 factors compared between the two stocks. CSLT generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, CRC is the cheaper of the two stocks on an earnings, book value and sales basis, CSLT is more undervalued relative to its price target. Finally, CSLT has better sentiment signals based on short interest.

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