Should You Buy ProPetro Holding Corp. (PUMP) or DICK’S Sporting Goods, Inc. (DKS)?

ProPetro Holding Corp. (NYSE:PUMP) shares are down more than -0.89% this year and recently decreased -4.24% or -$0.54 to settle at $12.21. DICK’S Sporting Goods, Inc. (NYSE:DKS), on the other hand, is up 6.70% year to date as of 08/12/2019. It currently trades at $33.29 and has returned -0.72% during the past week.

ProPetro Holding Corp. (NYSE:PUMP) and DICK’S Sporting Goods, Inc. (NYSE:DKS) are the two most active stocks in the Oil & Gas Equipment & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PUMP to grow earnings at a 10.90% annual rate over the next 5 years. Comparatively, DKS is expected to grow at a 3.90% annual rate. All else equal, PUMP’s higher growth rate would imply a greater potential for capital appreciation.

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. EBITDA margin of 6.66% for DICK’S Sporting Goods, Inc. (DKS). PUMP’s ROI is 20.90% while DKS has a ROI of 16.90%. The interpretation is that PUMP’s business generates a higher return on investment than DKS’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. PUMP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.31. Comparatively, DKS’s free cash flow per share was -3.14. On a percent-of-sales basis, PUMP’s free cash flow was -1.83% while DKS converted -3.42% of its revenues into cash flow. This means that, for a given level of sales, PUMP 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. PUMP has a current ratio of 1.50 compared to 1.30 for DKS. This means that PUMP can more easily cover its most immediate liabilities over the next twelve months. PUMP’s debt-to-equity ratio is 0.19 versus a D/E of 0.00 for DKS. PUMP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PUMP trades at a forward P/E of 4.23, a P/B of 1.41, and a P/S of 0.89, compared to a forward P/E of 9.65, a P/B of 1.69, and a P/S of 0.38 for DKS. 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”. PUMP is currently priced at a -54.15% to its one-year price target of 26.63. Comparatively, DKS is -10.94% relative to its price target of 37.38. This suggests that PUMP is the better investment over the next year.

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. PUMP has a short ratio of 5.91 compared to a short interest of 8.16 for DKS. This implies that the market is currently less bearish on the outlook for PUMP.

Summary

ProPetro Holding Corp. (NYSE:PUMP) beats DICK’S Sporting Goods, Inc. (NYSE:DKS) on a total of 11 of the 14 factors compared between the two stocks. PUMP is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, PUMP is the cheaper of the two stocks on an earnings and book value, PUMP is more undervalued relative to its price target. Finally, PUMP has better sentiment signals based on short interest.