CNX Resources Corporation (NYSE:CNX) shares are down more than -3.65% this year and recently decreased -2.05% or -$0.3 to settle at $14.35. Jones Energy, Inc. (NYSE:JONE), on the other hand, is down -78.87% year to date as of 12/05/2017. It currently trades at $0.97 and has returned 8.42% during the past week.
CNX Resources Corporation (NYSE:CNX) and Jones Energy, Inc. (NYSE:JONE) are the two most active stocks in the Independent Oil & Gas industry based on today’s 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect CNX to grow earnings at a 35.70% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. CNX Resources Corporation (CNX) has an EBITDA margin of 28.05%. This suggests that CNX underlying business is more profitable CNX’s ROI is -5.10% while JONE has a ROI of 1.60%. The interpretation is that JONE’s business generates a higher return on investment than CNX’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CNX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, JONE’s free cash flow per share was -0.71. On a percent-of-sales basis, CNX’s free cash flow was 0% while JONE converted -0.05% of its revenues into cash flow. This means that, for a given level of sales, CNX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CNX has a current ratio of 0.90 compared to 0.60 for JONE. This means that CNX can more easily cover its most immediate liabilities over the next twelve months. CNX’s debt-to-equity ratio is 0.65 versus a D/E of 1.98 for JONE. JONE is therefore the more solvent of the two companies, and has lower financial risk.
CNX trades at a forward P/E of 26.02, a P/B of 0.86, and a P/S of 1.38, compared to a P/B of 0.20, and a P/S of 0.47 for JONE. CNX is the expensive of the two stocks on an earnings, book value and sales basis. 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. CNX is currently priced at a -24.03% to its one-year price target of 18.89. Comparatively, JONE is -53.37% relative to its price target of 2.08. This suggests that JONE 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 CNX and 2.50 for JONE, which implies that analysts are more bullish on the outlook for JONE.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CNX has a beta of 1.52 and JONE’s beta is 2.70. CNX’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. CNX has a short ratio of 1.78 compared to a short interest of 15.36 for JONE. This implies that the market is currently less bearish on the outlook for CNX.
CNX Resources Corporation (NYSE:CNX) beats Jones Energy, Inc. (NYSE:JONE) on a total of 9 of the 14 factors compared between the two stocks. CNX is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, CNX has better sentiment signals based on short interest.