Callon Petroleum Company (NYSE:CPE) shares are down more than -29.58% this year and recently decreased -2.77% or -$0.13 to settle at $4.57. Editas Medicine, Inc. (NASDAQ:EDIT), on the other hand, is up 8.09% year to date as of 08/13/2019. It currently trades at $24.59 and has returned -0.16% during the past week.
Callon Petroleum Company (NYSE:CPE) and Editas Medicine, Inc. (NASDAQ:EDIT) are the two most active stocks in the Independent Oil & Gas 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect CPE to grow earnings at a 20.70% annual rate over the next 5 years.
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Callon Petroleum Company (CPE) has an EBITDA margin of 39.53%. This suggests that CPE underlying business is more profitable CPE’s ROI is 6.90% while EDIT has a ROI of -42.30%. The interpretation is that CPE’s business generates a higher return on investment than EDIT’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CPE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, EDIT’s free cash flow per share was -0.56. On a percent-of-sales basis, CPE’s free cash flow was -0% while EDIT converted -0.09% of its revenues into cash flow. This means that, for a given level of sales, CPE is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. CPE has a current ratio of 0.50 compared to 8.50 for EDIT. This means that EDIT can more easily cover its most immediate liabilities over the next twelve months. CPE’s debt-to-equity ratio is 0.44 versus a D/E of 0.00 for EDIT. CPE is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CPE trades at a forward P/E of 4.18, a P/B of 0.42, and a P/S of 1.62, compared to a P/B of 5.53, and a P/S of 48.29 for EDIT. 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”. CPE is currently priced at a -53.46% to its one-year price target of 9.82. Comparatively, EDIT is -47.36% relative to its price target of 46.71. This suggests that CPE is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CPE has a beta of 1.39 and EDIT’s beta is 2.50. CPE’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. CPE has a short ratio of 5.95 compared to a short interest of 14.26 for EDIT. This implies that the market is currently less bearish on the outlook for CPE.
Callon Petroleum Company (NYSE:CPE) beats Editas Medicine, Inc. (NASDAQ:EDIT) on a total of 10 of the 14 factors compared between the two stocks. CPE is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CPE is the cheaper of the two stocks on book value and sales basis, CPE is more undervalued relative to its price target. Finally, CPE has better sentiment signals based on short interest.