Scorpio Tankers Inc. (NYSE:STNG) shares are down more than -36.07% this year and recently increased 5.41% or $0.1 to settle at $1.95. Baytex Energy Corp. (NYSE:BTE), on the other hand, is down -7.33% year to date as of 09/11/2018. It currently trades at $2.78 and has returned -2.80% during the past week.
Scorpio Tankers Inc. (NYSE:STNG) and Baytex Energy Corp. (NYSE:BTE) are the two most active stocks in the Shipping 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, BTE is expected to grow at a 18.20% annual rate. All else equal, BTE’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. STNG’s ROI is -1.10% while BTE has a ROI of -0.10%. The interpretation is that BTE’s business generates a higher return on investment than STNG’s.Cash Flow
Cash is king when it comes to investing. STNG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.04. Comparatively, BTE’s free cash flow per share was -0.02. On a percent-of-sales basis, STNG’s free cash flow was 0% while BTE converted -0% of its revenues into cash flow. This means that, for a given level of sales, STNG 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. STNG has a current ratio of 0.70 compared to 0.60 for BTE. This means that STNG can more easily cover its most immediate liabilities over the next twelve months. STNG’s debt-to-equity ratio is 1.68 versus a D/E of 0.91 for BTE. STNG is therefore the more solvent of the two companies, and has lower financial risk.Valuation
STNG trades at a forward P/E of 16.67, a P/B of 0.37, and a P/S of 1.11, compared to a forward P/E of 10.33, a P/B of 0.45, and a P/S of 0.95 for BTE. STNG is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. STNG is currently priced at a -51.85% to its one-year price target of 4.05. Comparatively, BTE is -29.44% relative to its price target of 3.94. This suggests that STNG is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. STNG has a beta of 1.05 and BTE’s beta is 3.13. STNG’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. STNG has a short ratio of 7.60 compared to a short interest of 4.11 for BTE. This implies that the market is currently less bearish on the outlook for BTE.Summary
Baytex Energy Corp. (NYSE:BTE) beats Scorpio Tankers Inc. (NYSE:STNG) on a total of 6 of the 14 factors compared between the two stocks. BTE has higher cash flow per share, generates a higher return on investment and has lower financial risk. In terms of valuation, BTE is the cheaper of the two stocks on an earnings and sales basis, Finally, BTE has better sentiment signals based on short interest.