C&J Energy Services, Inc. (NYSE:CJ) shares are down more than -41.74% this year and recently increased 0.67% or $0.13 to settle at $19.50. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), on the other hand, is up 20.07% year to date as of 09/11/2018. It currently trades at $18.25 and has returned -6.89% during the past week.
C&J Energy Services, Inc. (NYSE:CJ) and Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) are the two most active stocks in the Oil & Gas Equipment & Services 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. Comparatively, VNDA is expected to grow at a 15.70% annual rate. All else equal, VNDA’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 2.57% for Vanda Pharmaceuticals Inc. (VNDA). CJ’s ROI is 1.80% while VNDA has a ROI of -13.00%. The interpretation is that CJ’s business generates a higher return on investment than VNDA’s.Cash Flow
Cash is king when it comes to investing. CJ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, VNDA’s free cash flow per share was +0.08. On a percent-of-sales basis, CJ’s free cash flow was 0.38% while VNDA converted 0% of its revenues into cash flow. This means that, for a given level of sales, CJ is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CJ has a current ratio of 2.20 compared to 5.70 for VNDA. This means that VNDA can more easily cover its most immediate liabilities over the next twelve months. CJ’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for VNDA. CJ is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CJ trades at a forward P/E of 16.46, a P/B of 0.96, and a P/S of 0.64, compared to a forward P/E of 44.62, a P/B of 3.79, and a P/S of 5.53 for VNDA. CJ is the cheaper of the two stocks on an earnings, book value and sales basis. 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. CJ is currently priced at a -34.37% to its one-year price target of 29.71. Comparatively, VNDA is -17.05% relative to its price target of 22.00. This suggests that CJ is the better investment over the next year.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CJ has a short ratio of 5.28 compared to a short interest of 4.71 for VNDA. This implies that the market is currently less bearish on the outlook for VNDA.Summary
C&J Energy Services, Inc. (NYSE:CJ) beats Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) on a total of 8 of the 14 factors compared between the two stocks. CJ generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CJ is the cheaper of the two stocks on an earnings, book value and sales basis, CJ is more undervalued relative to its price target.