Superior Energy Services, Inc. (NYSE:SPN) shares are down more than -45.56% this year and recently decreased -2.75% or -$0.26 to settle at $9.19. MRC Global Inc. (NYSE:MRC), on the other hand, is down -22.46% year to date as of 11/13/2017. It currently trades at $15.71 and has returned -3.62% during the past week.
Superior Energy Services, Inc. (NYSE:SPN) and MRC Global Inc. (NYSE:MRC) are the two most active stocks in the Oil & Gas Equipment & Services 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, MRC is expected to grow at a 15.00% annual rate. All else equal, MRC’s higher growth rate would imply a greater potential for capital appreciation.
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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 3.15% for MRC Global Inc. (MRC). SPN’s ROI is -29.50% while MRC has a ROI of -4.20%. The interpretation is that MRC’s business generates a higher return on investment than SPN’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. SPN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, MRC’s free cash flow per share was -0.30. On a percent-of-sales basis, SPN’s free cash flow was -1.06% while MRC converted -0.93% of its revenues into cash flow. This means that, for a given level of sales, MRC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. SPN has a current ratio of 2.00 compared to 2.30 for MRC. This means that MRC can more easily cover its most immediate liabilities over the next twelve months. SPN’s debt-to-equity ratio is 0.00 versus a D/E of 0.58 for MRC. MRC is therefore the more solvent of the two companies, and has lower financial risk.
SPN trades at a P/B of 1.26, and a P/S of 0.83, compared to a forward P/E of 25.59, a P/B of 1.91, and a P/S of 0.43 for MRC. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SPN is currently priced at a -20.91% to its one-year price target of 11.62. Comparatively, MRC is -23.07% relative to its price target of 20.42. This suggests that MRC 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 2.40 for SPN and 2.20 for MRC, which implies that analysts are more bullish on the outlook for SPN.
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. SPN has a beta of 2.13 and MRC’s beta is 1.64. MRC’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. SPN has a short ratio of 5.19 compared to a short interest of 5.66 for MRC. This implies that the market is currently less bearish on the outlook for SPN.
MRC Global Inc. (NYSE:MRC) beats Superior Energy Services, Inc. (NYSE:SPN) on a total of 9 of the 14 factors compared between the two stocks. MRC has higher cash flow per share, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. MRC is more undervalued relative to its price target. Finally, NOV has better sentiment signals based on short interest.