Hi-Crush Partners LP (NYSE:HCLP) shares are up more than 15.42% this year and recently increased 1.23% or $0.15 to settle at $12.35. VirnetX Holding Corp (NYSE:VHC), on the other hand, is down -5.41% year to date as of 09/11/2018. It currently trades at $3.50 and has returned 4.48% during the past week.
Hi-Crush Partners LP (NYSE:HCLP) and VirnetX Holding Corp (NYSE:VHC) are the two most active stocks in the Industrial Metals & Minerals 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 HCLP to grow earnings at a -1.42% annual rate over the next 5 years. Comparatively, VHC is expected to grow at a 15.00% annual rate. All else equal, VHC’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. Hi-Crush Partners LP (HCLP) has an EBITDA margin of 20.96%. This suggests that HCLP underlying business is more profitableCash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HCLP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.27. Comparatively, VHC’s free cash flow per share was -0.10. On a percent-of-sales basis, HCLP’s free cash flow was 0% while VHC converted -0.4% of its revenues into cash flow. This means that, for a given level of sales, HCLP is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. HCLP has a current ratio of 1.80 compared to 1.60 for VHC. This means that HCLP can more easily cover its most immediate liabilities over the next twelve months. HCLP’s debt-to-equity ratio is 0.23 versus a D/E of 0.00 for VHC. HCLP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HCLP trades at a forward P/E of 4.67, a P/B of 1.27, and a P/S of 1.28, compared to a P/B of 58.33, and a P/S of 262.11 for VHC. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. HCLP is currently priced at a -26.18% to its one-year price target of 16.73. Comparatively, VHC is 21.53% relative to its price target of 2.88. This suggests that HCLP 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. HCLP has a beta of 1.35 and VHC’s beta is 0.83. VHC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. HCLP has a short ratio of 4.39 compared to a short interest of 41.26 for VHC. This implies that the market is currently less bearish on the outlook for HCLP.Summary
Hi-Crush Partners LP (NYSE:HCLP) beats VirnetX Holding Corp (NYSE:VHC) on a total of 9 of the 14 factors compared between the two stocks. HCLP is more profitable, 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, HCLP is the cheaper of the two stocks on book value and sales basis, HCLP is more undervalued relative to its price target. Finally, HCLP has better sentiment signals based on short interest.