Sibanye Gold Limited (NYSE:SBGL) shares are down more than -47.28% this year and recently decreased -9.22% or -$0.26 to settle at $2.56. Summit Midstream Partners, LP (NYSE:SMLP), on the other hand, is down -21.37% year to date as of 11/01/2018. It currently trades at $16.12 and has returned -1.89% during the past week.
Sibanye Gold Limited (NYSE:SBGL) and Summit Midstream Partners, LP (NYSE:SMLP) are the two most active stocks in the Gold 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.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 EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 18.23% for Summit Midstream Partners, LP (SMLP). SBGL’s ROI is 0.70% while SMLP has a ROI of -2.10%. The interpretation is that SBGL’s business generates a higher return on investment than SMLP’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, SBGL’s free cash flow was 0% while SMLP converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, SBGL is able to generate more free cash flow for investors.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. SBGL has a current ratio of 1.80 compared to 1.10 for SMLP. This means that SBGL can more easily cover its most immediate liabilities over the next twelve months. SBGL’s debt-to-equity ratio is 1.13 versus a D/E of 1.26 for SMLP. SMLP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SBGL trades at a forward P/E of 6.24, a P/B of 0.83, and a P/S of 0.42, compared to a forward P/E of 13.43, a P/B of 1.30, and a P/S of 2.44 for SMLP. SBGL 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SBGL is currently priced at a -56.61% to its one-year price target of 5.90. Comparatively, SMLP is -11.91% relative to its price target of 18.30. This suggests that SBGL is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SBGL has a beta of -0.24 and SMLP’s beta is 1.38. SBGL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SBGL has a short ratio of 1.80 compared to a short interest of 1.75 for SMLP. This implies that the market is currently less bearish on the outlook for SMLP.Summary
Sibanye Gold Limited (NYSE:SBGL) beats Summit Midstream Partners, LP (NYSE:SMLP) on a total of 11 of the 14 factors compared between the two stocks. SBGL generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, SBGL is the cheaper of the two stocks on an earnings, book value and sales basis, SBGL is more undervalued relative to its price target. Finally, OGEN has better sentiment signals based on short interest.