PBF Logistics LP (NYSE:PBFX) and American Midstream Partners, LP (NYSE:AMID) are the two most active stocks in the Oil & Gas Pipelines 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect PBFX to grow earnings at a -0.27% annual rate over the next 5 years. Comparatively, AMID is expected to grow at a 1.00% annual rate. All else equal, AMID’s higher growth rate would imply a greater potential for capital appreciation.
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. PBF Logistics LP (PBFX) has an EBITDA margin of 349.52%, compared to an EBITDA margin of 10.64% for American Midstream Partners, LP (AMID). This suggests that PBFX underlying business is more profitable. PBFX’s ROI is 20.60% while AMID has a ROI of -1.40%. The interpretation is that PBFX’s business generates a higher return on investment than AMID’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. PBFX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.47. Comparatively, AMID’s free cash flow per share was -0.63. On a percent-of-sales basis, PBFX’s free cash flow was -0.01% while AMID converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, PBFX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. PBFX has a current ratio of 1.30 compared to 1.10 for AMID. This means that PBFX can more easily cover its most immediate liabilities over the next twelve months.
PBFX trades at a forward P/E of 8.25, and a P/S of 3.80, compared to a forward P/B of 1.40, and a P/S of 1.35 for AMID. 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. PBFX is currently priced at a -12.96% to its one-year price target of $24.07. Comparatively, AMID is -18.72% relative to its price target of $16.67. This suggests that AMID 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 1.90 for PBFX and 2.20 for AMID, which implies that analysts are more bullish on the outlook for AMID.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. AMID’s beta is 1.05.
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. PBFX has a short ratio of 2.20 compared to a short interest of 3.08 for AMID. This implies that the market is currently less bearish on the outlook for PBFX.
PBF Logistics LP (NYSE:PBFX) beats American Midstream Partners, LP (NYSE:AMID) on a total of 7 of the 10 factors compared between the two stocks. PBFX is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, PBFX has better sentiment signals based on short interest.