Chevron Corporation (NYSE:CVX) shares are down more than -2.07% this year and recently decreased -3.33% or -$4.22 to settle at $122.60. T-Mobile US, Inc. (NASDAQ:TMUS), on the other hand, is up 4.91% year to date as of 10/10/2018. It currently trades at $66.63 and has returned -3.41% during the past week.
Chevron Corporation (NYSE:CVX) and T-Mobile US, Inc. (NASDAQ:TMUS) are the two most active stocks in the Major Integrated 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CVX to grow earnings at a 56.03% annual rate over the next 5 years. Comparatively, TMUS is expected to grow at a -4.50% annual rate. All else equal, CVX’s higher growth rate would imply a greater potential for capital appreciation.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 27.11% for T-Mobile US, Inc. (TMUS). CVX’s ROI is 1.70% while TMUS has a ROI of 7.60%. The interpretation is that TMUS’s business generates a higher return on investment than CVX’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. CVX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.78. Comparatively, TMUS’s free cash flow per share was -0.43. On a percent-of-sales basis, CVX’s free cash flow was 1.05% while TMUS converted -0.9% of its revenues into cash flow. This means that, for a given level of sales, CVX is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CVX has a current ratio of 1.10 compared to 0.80 for TMUS. This means that CVX can more easily cover its most immediate liabilities over the next twelve months. CVX’s debt-to-equity ratio is 0.25 versus a D/E of 1.31 for TMUS. TMUS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CVX trades at a forward P/E of 13.00, a P/B of 1.53, and a P/S of 1.59, compared to a forward P/E of 16.75, a P/B of 2.42, and a P/S of 1.36 for TMUS. 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”. CVX is currently priced at a -16.11% to its one-year price target of 146.15. Comparatively, TMUS is -14.19% relative to its price target of 77.65. This suggests that CVX is the better investment over the next year.
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. CVX has a beta of 1.09 and TMUS’s beta is 0.38. TMUS’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. CVX has a short ratio of 3.13 compared to a short interest of 4.03 for TMUS. This implies that the market is currently less bearish on the outlook for CVX.Summary
Chevron Corporation (NYSE:CVX) beats T-Mobile US, Inc. (NASDAQ:TMUS) on a total of 9 of the 14 factors compared between the two stocks. CVX is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, CVX is the cheaper of the two stocks on an earnings and book value, CVX is more undervalued relative to its price target. Finally, CVX has better sentiment signals based on short interest.