Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) shares are down more than -47.36% this year and recently decreased -3.97% or -$0.78 to settle at $18.88. Apache Corporation (NYSE:APA), on the other hand, is down -33.59% year to date as of 12/05/2017. It currently trades at $40.66 and has returned 4.67% during the past week.
Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) and Apache Corporation (NYSE:APA) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 CRZO to grow earnings at a 20.00% annual rate over the next 5 years.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 57.15% for Apache Corporation (APA). CRZO’s ROI is -40.40% while APA has a ROI of -8.40%. The interpretation is that APA’s business generates a higher return on investment than CRZO’s.
The value of a stock is simply the present value of its future free cash flows. CRZO’s free cash flow (“FCF”) per share for the trailing twelve months was -7.94. Comparatively, APA’s free cash flow per share was -0.82. On a percent-of-sales basis, CRZO’s free cash flow was -0.15% while APA converted -5.84% of its revenues into cash flow. This means that, for a given level of sales, CRZO 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. CRZO has a current ratio of 0.30 compared to 1.50 for APA. This means that APA can more easily cover its most immediate liabilities over the next twelve months. CRZO’s debt-to-equity ratio is 4.38 versus a D/E of 1.21 for APA. CRZO is therefore the more solvent of the two companies, and has lower financial risk.
CRZO trades at a forward P/E of 9.97, a P/B of 4.10, and a P/S of 2.37, compared to a forward P/E of 77.77, a P/B of 2.29, and a P/S of 2.83 for APA. 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. CRZO is currently priced at a -28.97% to its one-year price target of 26.58. Comparatively, APA is -14.96% relative to its price target of 47.81. This suggests that CRZO 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 2.10 for CRZO and 3.00 for APA, which implies that analysts are more bullish on the outlook for APA.
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. CRZO has a beta of 2.17 and APA’s beta is 1.06. APA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CRZO has a short ratio of 4.85 compared to a short interest of 7.83 for APA. This implies that the market is currently less bearish on the outlook for CRZO.
Apache Corporation (NYSE:APA) beats Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) on a total of 7 of the 14 factors compared between the two stocks. APA is growing fastly, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. Finally, CPE has better sentiment signals based on short interest.