Endo International plc (NASDAQ:ENDP) shares are up more than 61.68% this year and recently increased 0.56% or $0.07 to settle at $12.53. Patterson-UTI Energy, Inc. (NASDAQ:PTEN), on the other hand, is down -37.33% year to date as of 11/20/2018. It currently trades at $14.42 and has returned -1.84% during the past week.
Endo International plc (NASDAQ:ENDP) and Patterson-UTI Energy, Inc. (NASDAQ:PTEN) are the two most active stocks based on recent 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect ENDP to grow earnings at a -8.47% annual rate over the next 5 years. Comparatively, PTEN is expected to grow at a 22.60% annual rate. All else equal, PTEN’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Endo International plc (ENDP) has an EBITDA margin of 8.01%. This suggests that ENDP underlying business is more profitable ENDP’s ROI is -9.10% while PTEN has a ROI of -3.70%. The interpretation is that PTEN’s business generates a higher return on investment than ENDP’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. ENDP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.17. Comparatively, PTEN’s free cash flow per share was +0.08. On a percent-of-sales basis, ENDP’s free cash flow was -1.1% while PTEN converted 0.74% of its revenues into cash flow. This means that, for a given level of sales, PTEN 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. ENDP has a current ratio of 1.10 compared to 1.70 for PTEN. This means that PTEN can more easily cover its most immediate liabilities over the next twelve months.Valuation
ENDP trades at a forward P/E of 4.61, and a P/S of 0.96, compared to a P/B of 0.84, and a P/S of 0.94 for PTEN. ENDP 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ENDP is currently priced at a -29.92% to its one-year price target of 17.88. Comparatively, PTEN is -33.67% relative to its price target of 21.74. This suggests that PTEN 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. ENDP has a beta of 0.41 and PTEN’s beta is 1.02. ENDP’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. ENDP has a short ratio of 6.04 compared to a short interest of 3.22 for PTEN. This implies that the market is currently less bearish on the outlook for PTEN.Summary
Patterson-UTI Energy, Inc. (NASDAQ:PTEN) beats Endo International plc (NASDAQ:ENDP) on a total of 10 of the 14 factors compared between the two stocks. PTEN is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, PTEN is the cheaper of the two stocks on an earnings and sales basis, PTEN is more undervalued relative to its price target. Finally, PTEN has better sentiment signals based on short interest.