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Should You Buy Baytex Energy Corp. (BTE) or Viking Therapeutics, Inc. (VKTX)?

Baytex Energy Corp. (NYSE:BTE) shares are down more than -16.67% this year and recently decreased -5.30% or -$0.14 to settle at $2.50. Viking Therapeutics, Inc. (NASDAQ:VKTX), on the other hand, is up 241.63% year to date as of 10/11/2018. It currently trades at $13.87 and has returned -11.43% during the past week.

Baytex Energy Corp. (NYSE:BTE) and Viking Therapeutics, Inc. (NASDAQ:VKTX) are the two most active stocks in the Independent Oil & Gas 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BTE to grow earnings at a 18.20% annual rate over the next 5 years. Comparatively, VKTX is expected to grow at a 40.00% annual rate. All else equal, VKTX’s higher growth rate would imply a greater potential for capital appreciation.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. BTE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, VKTX’s free cash flow per share was -0.10.

Liquidity and Financial Risk



Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. BTE has a current ratio of 0.60 compared to 35.10 for VKTX. This means that VKTX can more easily cover its most immediate liabilities over the next twelve months. BTE’s debt-to-equity ratio is 0.91 versus a D/E of 0.00 for VKTX. BTE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BTE trades at a forward P/E of 9.88, a P/B of 0.40, and a P/S of 1.94, compared to a P/B of 5.21, for VKTX. BTE 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. BTE is currently priced at a -36.55% to its one-year price target of 3.94. Comparatively, VKTX is -57.1% relative to its price target of 32.33. This suggests that VKTX 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. BTE has a beta of 3.16 and VKTX’s beta is 2.85. VKTX’s shares are therefore the less volatile of the two stocks.

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. BTE has a short ratio of 3.57 compared to a short interest of 2.75 for VKTX. This implies that the market is currently less bearish on the outlook for VKTX.

Summary




Viking Therapeutics, Inc. (NASDAQ:VKTX) beats Baytex Energy Corp. (NYSE:BTE) on a total of 10 of the 13 factors compared between the two stocks. VKTX has higher cash flow per share, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, VKTX is the cheaper of the two stocks on an earnings and sales basis, VKTX is more undervalued relative to its price target. Finally, VKTX has better sentiment signals based on short interest.

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