Global

Critical Comparison: Scorpio Tankers Inc. (STNG) vs. Hertz Global Holdings, Inc. (HTZ)

Scorpio Tankers Inc. (NYSE:STNG) shares are down more than -33.77% this year and recently decreased -1.94% or -$0.04 to settle at $2.02. Hertz Global Holdings, Inc. (NYSE:HTZ), on the other hand, is down -20.90% year to date as of 12/04/2018. It currently trades at $17.48 and has returned -10.77% during the past week.

Scorpio Tankers Inc. (NYSE:STNG) and Hertz Global Holdings, Inc. (NYSE:HTZ) are the two most active stocks based on recent trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

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. EBITDA margin of -420.47% for Hertz Global Holdings, Inc. (HTZ). STNG’s ROI is -1.10% while HTZ has a ROI of 11.40%. The interpretation is that HTZ’s business generates a higher return on investment than STNG’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. STNG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, HTZ’s free cash flow per share was -17.02. On a percent-of-sales basis, STNG’s free cash flow was -0.01% while HTZ converted -16.23% 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

STNG’s debt-to-equity ratio is 1.85 versus a D/E of 14.26 for HTZ. HTZ is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

STNG trades at a P/B of 0.40, and a P/S of 1.89, compared to a forward P/E of 41.92, a P/B of 1.22, and a P/S of 0.16 for HTZ. 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. STNG is currently priced at a -36.68% to its one-year price target of 3.19. Comparatively, HTZ is -17.74% relative to its price target of 21.25. This suggests that STNG is the better investment over the next year.

Risk and Volatility



To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. STNG has a beta of 0.95 and HTZ’s beta is 1.97. STNG’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. STNG has a short ratio of 5.10 compared to a short interest of 6.21 for HTZ. This implies that the market is currently less bearish on the outlook for STNG.

Summary

Scorpio Tankers Inc. (NYSE:STNG) beats Hertz Global Holdings, Inc. (NYSE:HTZ) on a total of 11 of the 14 factors compared between the two stocks. STNG is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, STNG is the cheaper of the two stocks on an earnings and book value, STNG is more undervalued relative to its price target. Finally, STNG has better sentiment signals based on short interest.

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