ProPetro Holding Corp. (NYSE:PUMP) shares are down more than -22.02% this year and recently increased 1.81% or $0.28 to settle at $15.72. Abraxas Petroleum Corporation (NASDAQ:AXAS), on the other hand, is down -7.32% year to date as of 09/11/2018. It currently trades at $2.28 and has returned -2.15% during the past week.
ProPetro Holding Corp. (NYSE:PUMP) and Abraxas Petroleum Corporation (NASDAQ:AXAS) 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.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, AXAS is expected to grow at a 2.00% annual rate. All else equal, AXAS’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 20.74% for Abraxas Petroleum Corporation (AXAS). PUMP’s ROI is 3.70% while AXAS has a ROI of 11.00%. The interpretation is that AXAS’s business generates a higher return on investment than PUMP’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. PUMP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, AXAS’s free cash flow per share was -0.08. On a percent-of-sales basis, PUMP’s free cash flow was -0% while AXAS converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, PUMP 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. PUMP has a current ratio of 1.20 compared to 0.40 for AXAS. This means that PUMP can more easily cover its most immediate liabilities over the next twelve months. PUMP’s debt-to-equity ratio is 0.22 versus a D/E of 1.07 for AXAS. AXAS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PUMP trades at a forward P/E of 7.66, a P/B of 2.67, and a P/S of 0.89, compared to a forward P/E of 5.55, a P/B of 3.51, and a P/S of 2.99 for AXAS. 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”. PUMP is currently priced at a -25.6% to its one-year price target of 21.13. Comparatively, AXAS is -37.53% relative to its price target of 3.65. This suggests that AXAS is the better investment over the next year.
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. PUMP has a short ratio of 9.93 compared to a short interest of 3.59 for AXAS. This implies that the market is currently less bearish on the outlook for AXAS.Summary
Abraxas Petroleum Corporation (NASDAQ:AXAS) beats ProPetro Holding Corp. (NYSE:PUMP) on a total of 7 of the 14 factors compared between the two stocks. AXAS has a higher cash conversion rate, is more profitable and generates a higher return on investment. AXAS is more undervalued relative to its price target. Finally, AXAS has better sentiment signals based on short interest.