Laredo Petroleum, Inc. (NYSE:LPI) shares are down more than -18.78% this year and recently decreased -2.33% or -$0.07 to settle at $2.94. GTx, Inc. (NASDAQ:GTXI), on the other hand, is up 38.46% year to date as of 05/28/2019. It currently trades at $1.08 and has returned 3.85% during the past week.
Laredo Petroleum, Inc. (NYSE:LPI) and GTx, Inc. (NASDAQ:GTXI) are the two most active stocks based on recent 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect LPI to grow earnings at a 10.49% annual rate over the next 5 years. Comparatively, GTXI is expected to grow at a 0.00% annual rate. All else equal, LPI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
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. Laredo Petroleum, Inc. (LPI) has an EBITDA margin of 54.51%. This suggests that LPI underlying business is more profitable
If there’s one thing investors care more about than earnings, it’s cash flow. LPI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.34. Comparatively, GTXI’s free cash flow per share was -0.30.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. LPI has a current ratio of 0.80 compared to 12.40 for GTXI. This means that GTXI can more easily cover its most immediate liabilities over the next twelve months. LPI’s debt-to-equity ratio is 0.91 versus a D/E of 0.00 for GTXI. LPI is therefore the more solvent of the two companies, and has lower financial risk.
LPI trades at a forward P/E of 3.54, a P/B of 0.58, and a P/S of 0.65, compared to a P/B of 1.24, for GTXI. LPI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. LPI is currently priced at a -39.38% to its one-year price target of 4.85. Comparatively, GTXI is -28% relative to its price target of 1.50. This suggests that LPI is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. LPI has a beta of 1.42 and GTXI’s beta is 2.48. LPI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. LPI has a short ratio of 4.17 compared to a short interest of 2.02 for GTXI. This implies that the market is currently less bearish on the outlook for GTXI.
Laredo Petroleum, Inc. (NYSE:LPI) beats GTx, Inc. (NASDAQ:GTXI) on a total of 7 of the 13 factors compared between the two stocks. LPI is growing fastly, is more profitable and generates a higher return on investment. LPI is more undervalued relative to its price target. Finally, XEC has better sentiment signals based on short interest.