Finance

Critical Comparison: Extraction Oil & Gas, Inc. (XOG) vs. Novavax, Inc. (NVAX)

Extraction Oil & Gas, Inc. (NASDAQ:XOG) shares are down more than -24.95% this year and recently decreased -0.92% or -$0.1 to settle at $10.74. Novavax, Inc. (NASDAQ:NVAX), on the other hand, is up 16.13% year to date as of 09/11/2018. It currently trades at $1.44 and has returned -7.10% during the past week.

Extraction Oil & Gas, Inc. (NASDAQ:XOG) and Novavax, Inc. (NASDAQ:NVAX) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect XOG to grow earnings at a 30.00% annual rate over the next 5 years. Comparatively, NVAX is expected to grow at a 0.00% annual rate. All else equal, XOG’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. Extraction Oil & Gas, Inc. (XOG) has an EBITDA margin of 34.3%. This suggests that XOG underlying business is more profitable XOG’s ROI is 0.70% while NVAX has a ROI of -79.50%. The interpretation is that XOG’s business generates a higher return on investment than NVAX’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. XOG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.61. Comparatively, NVAX’s free cash flow per share was -0.11. On a percent-of-sales basis, XOG’s free cash flow was -0.02% while NVAX converted -0.13% of its revenues into cash flow. This means that, for a given level of sales, XOG 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. XOG has a current ratio of 0.40 compared to 4.50 for NVAX. This means that NVAX can more easily cover its most immediate liabilities over the next twelve months.

Valuation

XOG trades at a forward P/E of 7.88, a P/B of 1.18, and a P/S of 2.17, compared to a P/S of 13.58 for NVAX. XOG 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

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. XOG is currently priced at a -44.58% to its one-year price target of 19.38. Comparatively, NVAX is -62.69% relative to its price target of 3.86. This suggests that NVAX is the better investment over the next year.

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. XOG has a short ratio of 7.43 compared to a short interest of 12.78 for NVAX. This implies that the market is currently less bearish on the outlook for XOG.

Summary




Extraction Oil & Gas, Inc. (NASDAQ:XOG) beats Novavax, Inc. (NASDAQ:NVAX) on a total of 8 of the 14 factors compared between the two stocks. XOG is growing fastly, is more profitable, generates a higher return on investment and has a higher cash conversion rate. Finally, XOG has better sentiment signals based on short interest.

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