Earnings

Which of 2 stocks would appeal to long-term investors? Laredo Petroleum, Inc. (LPI), WMIH Corp. (WMIH)

The shares of Laredo Petroleum, Inc. have decreased by more than -36.00% this year alone. The shares recently went down by -5.30% or -$0.38 and now trades at $6.79. The shares of WMIH Corp. (NASDAQ:WMIH), has jumped by 54.28% year to date as of 10/10/2018. The shares currently trade at $1.31 and have been able to report a change of -7.09% over the past one week.

The stock of Laredo Petroleum, Inc. and WMIH Corp. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 29.07% versus 28.96%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that LPI will grow it’s earning at a 29.07% annual rate in the next 5 years. This is in contrast to WMIH which will have a positive growth at a 28.96% annual rate. This means that the higher growth rate of LPI implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. LPI has an EBITDA margin of 82.28%, this implies that the underlying business of WMIH is more profitable. The ROI of LPI is 14.40% while that of WMIH is -2.70%. These figures suggest that LPI ventures generate a higher ROI than that of WMIH.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, LPI’s free cash flow per share is a negative -0.01, while that of WMIH is also a negative -0.03.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of LPI is 0.94 compared to 0.00 for WMIH. LPI can be able to settle its long-term debts and thus is a lower financial risk than WMIH.

Valuation

LPI currently trades at a forward P/E of 4.84, a P/B of 1.64, and a P/S of 1.58 while WMIH trades at a forward P/E of 5.44, a P/B of 3.12, and a P/S of 151.35. This means that looking at the earnings, book values and sales basis, LPI is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of LPI is currently at a -44.34% to its one-year price target of 12.20. Looking at its rival pricing, WMIH is at a -20.12% relative to its price target of 1.64.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), LPI is given a 2.60 while 2.60 placed for WMIH. This means that analysts are equally bullish on their outlook for the two stocks stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for LPI is 4.80 while that of WMIH is just 2.65. This means that analysts are more bullish on the forecast for WMIH stock.

Conclusion

The stock of WMIH Corp. defeats that of Laredo Petroleum, Inc. when the two are compared, with WMIH taking 5 out of the total factors that were been considered. WMIH happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, WMIH is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for WMIH is better on when it is viewed on short interest.

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