Whiting Petroleum Corporation (NYSE:WLL) and Atwood Oceanics, Inc. (NYSE:ATW) are the two most active stocks in the Oil & Gas Drilling & Exploration 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
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Whiting Petroleum Corporation (WLL) has an EBITDA margin of 60.45%, compared to an EBITDA margin of 34.58% for Atwood Oceanics, Inc. (ATW). This suggests that WLL underlying business is more profitable. WLL’s ROI is -9.00% while ATW has a ROI of 7.10%. The interpretation is that ATW’s business generates a higher return on investment than WLL’s.
If there’s one thing investors care more about than earnings, it’s cash flow. WLL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, ATW’s free cash flow per share was +0.46. On a percent-of-sales basis, WLL’s free cash flow was -8.44% while ATW converted 3.62% of its revenues into cash flow. This means that, for a given level of sales, ATW is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. WLL has a current ratio of 0.60 compared to 8.80 for ATW. This means that ATW can more easily cover its most immediate liabilities over the next twelve months. WLL’s debt-to-equity ratio is 0.66 versus a D/E of 0.38 for ATW. WLL is therefore the more solvent of the two companies, and has lower financial risk.
WLL trades at a forward P/B of 0.34, and a P/S of 1.26, compared to a forward P/B of 0.15, and a P/S of 0.79 for ATW. 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. WLL is currently priced at a -46.5% to its one-year price target of $8.71. Comparatively, ATW is -29.71% relative to its price target of $9.29. This suggests that WLL 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 WLL and 3.00 for ATW, which implies that analysts are more bullish on the outlook for ATW.
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. WLL has a beta of 3.34 and ATW’s beta is 2.44. ATW’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. WLL has a short ratio of 3.41 compared to a short interest of 6.20 for ATW. This implies that the market is currently less bearish on the outlook for WLL.
Atwood Oceanics, Inc. (NYSE:ATW) beats Whiting Petroleum Corporation (NYSE:WLL) on a total of 8 of the 12 factors compared between the two stocks. ATW 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, ATW is the cheaper of the two stocks on book value and sales basis, Finally, ACCO has better sentiment signals based on short interest.