Oasis Petroleum Inc. (NYSE:OAS) shares are down more than -45.75% this year and recently increased 1.35% or $0.04 to settle at $3.00. Philip Morris International Inc. (NYSE:PM), on the other hand, is up 25.75% year to date as of 08/13/2019. It currently trades at $83.95 and has returned 3.23% during the past week.
Oasis Petroleum Inc. (NYSE:OAS) and Philip Morris International Inc. (NYSE:PM) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect OAS to grow earnings at a 10.12% annual rate over the next 5 years. Comparatively, PM is expected to grow at a 5.71% annual rate. All else equal, OAS’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. , compared to an EBITDA margin of 15.38% for Philip Morris International Inc. (PM). OAS’s ROI is 1.70% while PM has a ROI of 46.40%. The interpretation is that PM’s business generates a higher return on investment than OAS’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. OAS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, PM’s free cash flow per share was +0.96. On a percent-of-sales basis, OAS’s free cash flow was -3.47% while PM converted 1.87% of its revenues into cash flow. This means that, for a given level of sales, PM is able to generate more free cash flow for investors.
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. OAS has a current ratio of 0.80 compared to 1.00 for PM. This means that PM can more easily cover its most immediate liabilities over the next twelve months.Valuation
OAS trades at a forward P/E of 43.48, a P/B of 0.26, and a P/S of 0.38, compared to a forward P/E of 14.89, and a P/S of 4.43 for PM. OAS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. OAS is currently priced at a -56.08% to its one-year price target of 6.83. Comparatively, PM is -12.75% relative to its price target of 96.22. This suggests that OAS 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. OAS has a beta of 2.19 and PM’s beta is 0.98. PM’s shares are therefore the less volatile of the two stocks.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. OAS has a short ratio of 5.04 compared to a short interest of 2.64 for PM. This implies that the market is currently less bearish on the outlook for PM.
Philip Morris International Inc. (NYSE:PM) beats Oasis Petroleum Inc. (NYSE:OAS) on a total of 10 of the 14 factors compared between the two stocks. PM is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, PM is the cheaper of the two stocks on an earnings and book value, Finally, PM has better sentiment signals based on short interest.