Forum Energy Technologies, Inc. (NYSE:FET) and Basic Energy Services, Inc. (NYSE:BAS) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. FET’s ROI is -4.50% while BAS has a ROI of -4.30%. The interpretation is that BAS’s business generates a higher return on investment than FET’s.
Cash is king when it comes to investing. FET’s free cash flow (“FCF”) per share for the trailing twelve months was +0.11. Comparatively, BAS’s free cash flow per share was -0.32. On a percent-of-sales basis, FET’s free cash flow was 0% while BAS converted -0% of its revenues into cash flow. This means that, for a given level of sales, FET 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. FET has a current ratio of 4.20 compared to 1.30 for BAS. This means that FET can more easily cover its most immediate liabilities over the next twelve months. FET’s debt-to-equity ratio is 0.34 versus a D/E of 0.70 for BAS. BAS is therefore the more solvent of the two companies, and has lower financial risk.
FET trades at a forward P/E of 50.22, a P/B of 0.92, and a P/S of 1.68, compared to a forward P/B of 1.11, and a P/S of 0.59 for BAS. FET 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 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. FET is currently priced at a -38.42% to its one-year price target of $18.27. Comparatively, BAS is -51.41% relative to its price target of $31.92. This suggests that BAS is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.60 for FET and 2.50 for BAS, which implies that analysts are more bullish on the outlook for FET.
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. FET has a beta of 1.62.
Basic Energy Services, Inc. (NYSE:BAS) beats Forum Energy Technologies, Inc. (NYSE:FET) on a total of 5 of the 10 factors compared between the two stocks. BAS has higher cash flow per share and generates a higher return on investment. BAS is more undervalued relative to its price target. Finally, SPN has better sentiment signals based on short interest.