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Keane Group, Inc. (FRAC) vs. AVEO Pharmaceuticals, Inc. (AVEO): Breaking Down the Two Hottest Stocks

Keane Group, Inc. (NYSE:FRAC) shares are down more than -38.87% this year and recently increased 3.75% or $0.42 to settle at $11.62. AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), on the other hand, is up 3.23% year to date as of 09/11/2018. It currently trades at $2.88 and has returned -4.00% during the past week.

Keane Group, Inc. (NYSE:FRAC) and AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

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. Keane Group, Inc. (FRAC) has an EBITDA margin of 15.74%. This suggests that FRAC underlying business is more profitable FRAC’s ROI is -0.50% while AVEO has a ROI of 129.70%. The interpretation is that AVEO’s business generates a higher return on investment than FRAC’s.

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. FRAC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, AVEO’s free cash flow per share was -0.07. On a percent-of-sales basis, FRAC’s free cash flow was 0.57% while AVEO converted -0.11% of its revenues into cash flow. This means that, for a given level of sales, FRAC 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. FRAC has a current ratio of 1.70 compared to 1.20 for AVEO. This means that FRAC can more easily cover its most immediate liabilities over the next twelve months.

Valuation

FRAC trades at a forward P/E of 14.21, a P/B of 2.56, and a P/S of 0.59, compared to a P/S of 56.03 for AVEO. FRAC 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

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. FRAC is currently priced at a -36.78% to its one-year price target of 18.38. Comparatively, AVEO is -51.02% relative to its price target of 5.88. This suggests that AVEO is the better investment over the next year.

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. FRAC has a short ratio of 2.90 compared to a short interest of 6.36 for AVEO. This implies that the market is currently less bearish on the outlook for FRAC.

Summary

Keane Group, Inc. (NYSE:FRAC) beats AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) on a total of 7 of the 14 factors compared between the two stocks. FRAC is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, FRAC has better sentiment signals based on short interest.

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