SemGroup Corporation (NYSE:SEMG) shares are down more than -27.43% this year and recently increased 2.04% or $0.2 to settle at $10.00. G-III Apparel Group, Ltd. (NASDAQ:GIII), on the other hand, is down -19.00% year to date as of 08/12/2019. It currently trades at $22.59 and has returned -9.09% during the past week.
SemGroup Corporation (NYSE:SEMG) and G-III Apparel Group, Ltd. (NASDAQ:GIII) are the two most active stocks in the Oil & Gas Pipelines industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, GIII is expected to grow at a 6.50% annual rate. All else equal, GIII’s higher growth rate would imply a greater potential for capital appreciation.
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., compared to an EBITDA margin of 8.99% for G-III Apparel Group, Ltd. (GIII). SEMG’s ROI is 3.80% while GIII has a ROI of 11.70%. The interpretation is that GIII’s business generates a higher return on investment than SEMG’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. SEMG’s free cash flow (“FCF”) per share for the trailing twelve months was -1.76. Comparatively, GIII’s free cash flow per share was -0.78. On a percent-of-sales basis, SEMG’s free cash flow was -5.59% while GIII converted -1.24% of its revenues into cash flow. This means that, for a given level of sales, GIII is able to generate more free cash flow for investors.
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. SEMG has a current ratio of 1.40 compared to 2.20 for GIII. This means that GIII can more easily cover its most immediate liabilities over the next twelve months. SEMG’s debt-to-equity ratio is 1.82 versus a D/E of 0.35 for GIII. SEMG is therefore the more solvent of the two companies, and has lower financial risk.Valuation
SEMG trades at a P/B of 0.58, and a P/S of 0.37, compared to a forward P/E of 6.36, a P/B of 0.93, and a P/S of 0.38 for GIII. SEMG 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. SEMG is currently priced at a -31.55% to its one-year price target of 14.61. Comparatively, GIII is -40.72% relative to its price target of 38.11. This suggests that GIII is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SEMG has a beta of 1.46 and GIII’s beta is 1.42. GIII’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. SEMG has a short ratio of 5.39 compared to a short interest of 7.27 for GIII. This implies that the market is currently less bearish on the outlook for SEMG.
G-III Apparel Group, Ltd. (NASDAQ:GIII) beats SemGroup Corporation (NYSE:SEMG) on a total of 9 of the 14 factors compared between the two stocks. GIII 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, SEMG is the cheaper of the two stocks on an earnings, book value and sales basis, GIII is more undervalued relative to its price target.