Noble Energy, Inc. (NYSE:NBL) shares are down more than -30.03% this year and recently decreased -2.59% or -$0.69 to settle at $25.94. Gulfport Energy Corporation (NASDAQ:GPOR), on the other hand, is down -41.54% year to date as of 12/05/2017. It currently trades at $12.34 and has returned 2.10% during the past week.
Noble Energy, Inc. (NYSE:NBL) and Gulfport Energy Corporation (NASDAQ:GPOR) are the two most active stocks in the Independent Oil & Gas 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.
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 NBL to grow earnings at a 3.75% annual rate over the next 5 years. Comparatively, GPOR is expected to grow at a 30.00% annual rate. All else equal, GPOR’s higher growth rate would imply a greater potential for capital appreciation.
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. EBITDA margin of 46.36% for Gulfport Energy Corporation (GPOR). NBL’s ROI is -3.10% while GPOR has a ROI of -23.50%. The interpretation is that NBL’s business generates a higher return on investment than GPOR’s.
The value of a stock is simply the present value of its future free cash flows. NBL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.51. Comparatively, GPOR’s free cash flow per share was -0.69. On a percent-of-sales basis, NBL’s free cash flow was -7.11% while GPOR converted -0.03% of its revenues into cash flow. This means that, for a given level of sales, GPOR 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. NBL has a current ratio of 1.00 compared to 0.60 for GPOR. This means that NBL can more easily cover its most immediate liabilities over the next twelve months. NBL’s debt-to-equity ratio is 0.80 versus a D/E of 0.67 for GPOR. NBL is therefore the more solvent of the two companies, and has lower financial risk.
NBL trades at a forward P/E of 682.82, a P/B of 1.37, and a P/S of 3.19, compared to a forward P/E of 8.33, a P/B of 0.79, and a P/S of 2.31 for GPOR. NBL 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. NBL is currently priced at a -27.36% to its one-year price target of 35.71. Comparatively, GPOR is -36.46% relative to its price target of 19.42. This suggests that GPOR 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 2.20 for NBL and 2.10 for GPOR, which implies that analysts are more bullish on the outlook for NBL.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NBL has a beta of 1.17 and GPOR’s beta is 0.71. GPOR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.NBL has a short ratio of 3.42 compared to a short interest of 2.31 for GPOR. This implies that the market is currently less bearish on the outlook for GPOR.
Gulfport Energy Corporation (NASDAQ:GPOR) beats Noble Energy, Inc. (NYSE:NBL) on a total of 11 of the 14 factors compared between the two stocks. GPOR generates a higher return on investment, is more profitable, has a higher cash conversion rate and has lower financial risk. In terms of valuation, GPOR is the cheaper of the two stocks on an earnings, book value and sales basis, GPOR is more undervalued relative to its price target. Finally, GPOR has better sentiment signals based on short interest.