McDermott International, Inc. (NYSE:MDR) shares are down more than -38.69% this year and recently increased 2.30% or $0.09 to settle at $4.01. Qudian Inc. (NYSE:QD), on the other hand, is up 106.29% year to date as of 08/13/2019. It currently trades at $8.85 and has returned 4.00% during the past week.
McDermott International, Inc. (NYSE:MDR) and Qudian Inc. (NYSE:QD) are the two most active stocks in the Oil & Gas Equipment & Services 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MDR to grow earnings at a 51.50% annual rate over the next 5 years. Comparatively, QD is expected to grow at a 2.63% annual rate. All else equal, MDR’s higher growth rate would imply a greater potential for capital appreciation.
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. EBITDA margin of 34.59% for Qudian Inc. (QD). MDR’s ROI is -54.90% while QD has a ROI of 16.80%. The interpretation is that QD’s business generates a higher return on investment than MDR’s.Cash Flow
Cash is king when it comes to investing. MDR’s free cash flow (“FCF”) per share for the trailing twelve months was -1.21. Comparatively, QD’s free cash flow per share was -. On a percent-of-sales basis, MDR’s free cash flow was -3.28% while QD converted 0% of its revenues into cash flow. This means that, for a given level of sales, QD is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MDR has a current ratio of 0.70 compared to 2.90 for QD. This means that QD can more easily cover its most immediate liabilities over the next twelve months. MDR’s debt-to-equity ratio is 7.47 versus a D/E of 0.41 for QD. MDR is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MDR trades at a forward P/E of 2.29, a P/B of 1.40, and a P/S of 0.09, compared to a forward P/E of 3.98, a P/B of 1.57, and a P/S of 2.30 for QD. MDR 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. MDR is currently priced at a -62.56% to its one-year price target of 10.71. Comparatively, QD is -10.79% relative to its price target of 9.92. This suggests that MDR is the better investment over the next year.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. MDR has a short ratio of 7.97 compared to a short interest of 2.64 for QD. This implies that the market is currently less bearish on the outlook for QD.
Qudian Inc. (NYSE:QD) beats McDermott International, Inc. (NYSE:MDR) on a total of 9 of the 14 factors compared between the two stocks. QD is growing fastly, 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, MDR is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, QD has better sentiment signals based on short interest.