EOG Resources, Inc. (NYSE:EOG) shares are up more than 17.20% this year and recently decreased -4.44% or -$5.88 to settle at $126.47. Monster Beverage Corporation (NASDAQ:MNST), on the other hand, is down -14.84% year to date as of 10/10/2018. It currently trades at $53.90 and has returned -4.89% during the past week.
EOG Resources, Inc. (NYSE:EOG) and Monster Beverage Corporation (NASDAQ:MNST) 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.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, MNST is expected to grow at a 17.09% annual rate. All else equal, MNST’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 35.78% for Monster Beverage Corporation (MNST). EOG’s ROI is 2.90% while MNST has a ROI of 22.10%. The interpretation is that MNST’s business generates a higher return on investment than EOG’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. EOG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, MNST’s free cash flow per share was +0.58. On a percent-of-sales basis, EOG’s free cash flow was 1.34% while MNST converted 9.51% of its revenues into cash flow. This means that, for a given level of sales, MNST is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. EOG has a current ratio of 1.00 compared to 3.00 for MNST. This means that MNST can more easily cover its most immediate liabilities over the next twelve months. EOG’s debt-to-equity ratio is 0.37 versus a D/E of 0.00 for MNST. EOG is therefore the more solvent of the two companies, and has lower financial risk.Valuation
EOG trades at a forward P/E of 17.92, a P/B of 4.18, and a P/S of 5.20, compared to a forward P/E of 27.19, a P/B of 8.37, and a P/S of 8.27 for MNST. EOG is the cheaper 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. EOG is currently priced at a -11.13% to its one-year price target of 142.31. Comparatively, MNST is -18.33% relative to its price target of 66.00. This suggests that MNST is the better investment over the next year.
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. EOG has a beta of 1.01 and MNST’s beta is 1.36. EOG’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. EOG has a short ratio of 3.53 compared to a short interest of 2.46 for MNST. This implies that the market is currently less bearish on the outlook for MNST.Summary
Monster Beverage Corporation (NASDAQ:MNST) beats EOG Resources, Inc. (NYSE:EOG) on a total of 8 of the 14 factors compared between the two stocks. MNST is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, EOG is the cheaper of the two stocks on an earnings, book value and sales basis, MNST is more undervalued relative to its price target. Finally, MNST has better sentiment signals based on short interest.