Oasis Petroleum Inc. (NYSE:OAS) shares are down more than -45.57% this year and recently increased 3.44% or $0.1 to settle at $3.01. Covetrus, Inc. (NASDAQ:CVET), on the other hand, is down -76.01% year to date as of 11/07/2019. It currently trades at $10.07 and has returned 1.61% during the past week.
Oasis Petroleum Inc. (NYSE:OAS) and Covetrus, Inc. (NASDAQ:CVET) 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect OAS to grow earnings at a 14.70% annual rate over the next 5 years. Comparatively, CVET is expected to grow at a 17.65% annual rate. All else equal, CVET’s higher growth rate would imply a greater potential for capital appreciation.
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Oasis Petroleum Inc. (OAS) has an EBITDA margin of 48.83%. This suggests that OAS underlying business is more profitable OAS’s ROI is 1.70% while CVET has a ROI of 6.90%. The interpretation is that CVET’s business generates a higher return on investment than OAS’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. OAS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, CVET’s free cash flow per share was -0.04. On a percent-of-sales basis, OAS’s free cash flow was -3.47% while CVET converted -0.12% of its revenues into cash flow. This means that, for a given level of sales, CVET is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. OAS has a current ratio of 0.80 compared to 1.70 for CVET. This means that CVET can more easily cover its most immediate liabilities over the next twelve months. OAS’s debt-to-equity ratio is 0.79 versus a D/E of 0.53 for CVET. OAS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
OAS trades at a P/B of 0.26, and a P/S of 0.37, compared to a forward P/E of 18.87, a P/B of 0.50, and a P/S of 0.30 for CVET. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. OAS is currently priced at a -38.07% to its one-year price target of 4.86. Comparatively, CVET is -21.02% relative to its price target of 12.75. This suggests that OAS 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. OAS has a short ratio of 4.47 compared to a short interest of 5.14 for CVET. This implies that the market is currently less bearish on the outlook for OAS.
Covetrus, Inc. (NASDAQ:CVET) beats Oasis Petroleum Inc. (NYSE:OAS) on a total of 9 of the 14 factors compared between the two stocks. CVET 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.