TechnipFMC plc (NYSE:FTI) shares are down more than -3.68% this year and recently increased 0.11% or $0.02 to settle at $18.86. TRI Pointe Group, Inc. (NYSE:TPH), on the other hand, is up 39.07% year to date as of 12/02/2019. It currently trades at $15.20 and has returned 0.60% during the past week.
TechnipFMC plc (NYSE:FTI) and TRI Pointe Group, Inc. (NYSE:TPH) are the two most active stocks in the Oil & Gas Equipment & Services 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 FTI to grow earnings at a 37.21% annual rate over the next 5 years. Comparatively, TPH is expected to grow at a -0.60% annual rate. All else equal, FTI’s higher growth rate would imply a greater potential for capital appreciation.
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 9.42% for TRI Pointe Group, Inc. (TPH). FTI’s ROI is -9.10% while TPH has a ROI of 7.60%. The interpretation is that TPH’s business generates a higher return on investment than FTI’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. FTI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.12. Comparatively, TPH’s free cash flow per share was +0.02. On a percent-of-sales basis, FTI’s free cash flow was -0.43% while TPH converted 0.09% of its revenues into cash flow. This means that, for a given level of sales, TPH is able to generate more free cash flow for investors.
FTI’s debt-to-equity ratio is 0.39 versus a D/E of 0.68 for TPH. TPH is therefore the more solvent of the two companies, and has lower financial risk.
FTI trades at a forward P/E of 12.84, a P/B of 0.84, and a P/S of 0.67, compared to a forward P/E of 9.95, a P/B of 1.02, and a P/S of 0.69 for TPH. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FTI is currently priced at a -35.87% to its one-year price target of 29.41. Comparatively, TPH is -7.49% relative to its price target of 16.43. This suggests that FTI is the better investment over the next year.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. FTI has a short ratio of 2.66 compared to a short interest of 7.14 for TPH. This implies that the market is currently less bearish on the outlook for FTI.
TechnipFMC plc (NYSE:FTI) beats TRI Pointe Group, Inc. (NYSE:TPH) on a total of 9 of the 14 factors compared between the two stocks. FTI is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, FTI is the cheaper of the two stocks on book value and sales basis, FTI is more undervalued relative to its price target. Finally, FTI has better sentiment signals based on short interest.