Abraxas Petroleum Corporation (NASDAQ:AXAS) shares are down more than -14.40% this year and recently decreased -6.82% or -$0.15 to settle at $2.05. Houston American Energy Corp. (NYSE:HUSA), on the other hand, is up 126.35% year to date as of 12/05/2017. It currently trades at $0.38 and has returned 6.03% during the past week.
Abraxas Petroleum Corporation (NASDAQ:AXAS) and Houston American Energy Corp. (NYSE:HUSA) 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 AXAS to grow earnings at a 2.00% annual rate over the next 5 years.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Abraxas Petroleum Corporation (AXAS) has an EBITDA margin of 46.7%. This suggests that AXAS underlying business is more profitable AXAS’s ROI is -63.30% while HUSA has a ROI of -91.30%. The interpretation is that AXAS’s business generates a higher return on investment than HUSA’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. AXAS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, HUSA’s free cash flow per share was -0.04. On a percent-of-sales basis, AXAS’s free cash flow was -0.07% while HUSA converted -1.36% of its revenues into cash flow. This means that, for a given level of sales, AXAS 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. AXAS has a current ratio of 0.50 compared to 0.40 for HUSA. This means that AXAS can more easily cover its most immediate liabilities over the next twelve months. AXAS’s debt-to-equity ratio is 0.62 versus a D/E of 0.10 for HUSA. AXAS is therefore the more solvent of the two companies, and has lower financial risk.
AXAS trades at a forward P/E of 8.03, a P/B of 3.28, and a P/S of 4.55, compared to a P/B of 5.04, and a P/S of 76.40 for HUSA. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. AXAS is currently priced at a -23.79% to its one-year price target of 2.69. 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. AXAS has a beta of 1.46 and HUSA’s beta is 0.22. HUSA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AXAS has a short ratio of 1.63 compared to a short interest of 3.14 for HUSA. This implies that the market is currently less bearish on the outlook for AXAS.
Abraxas Petroleum Corporation (NASDAQ:AXAS) beats Houston American Energy Corp. (NYSE:HUSA) on a total of 8 of the 13 factors compared between the two stocks. AXAS is growing fastly, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. In terms of valuation, AXAS is the cheaper of the two stocks on book value and sales basis, Finally, AXAS has better sentiment signals based on short interest.