Cobalt International Energy, Inc. (NYSE:CIE) shares are down more than -97.24% this year and recently decreased -4.72% or -$0.03 to settle at $0.50. EnerJex Resources, Inc. (NYSE:ENRJ), on the other hand, is down -13.07% year to date as of 12/04/2017. It currently trades at $0.25 and has returned -5.58% during the past week.
Cobalt International Energy, Inc. (NYSE:CIE) and EnerJex Resources, Inc. (NYSE:ENRJ) are the two most active stocks in the Independent Oil & Gas 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 CIE to grow earnings at a 3.72% annual rate over the next 5 years.
Profitability and Returns
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 482.25% for EnerJex Resources, Inc. (ENRJ). CIE’s ROI is -138.10% while ENRJ has a ROI of 1856.50%. The interpretation is that ENRJ’s business generates a higher return on investment than CIE’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CIE’s free cash flow (“FCF”) per share for the trailing twelve months was -1.64. Comparatively, ENRJ’s free cash flow per share was +0.00. On a percent-of-sales basis, CIE’s free cash flow was -0.29% while ENRJ converted 0% of its revenues into cash flow. This means that, for a given level of sales, ENRJ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CIE has a current ratio of 1.60 compared to 0.10 for ENRJ. This means that CIE can more easily cover its most immediate liabilities over the next twelve months.
CIE trades at a P/S of 0.36, compared to a P/S of 1.54 for ENRJ. CIE 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
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. CIE is currently priced at a -75% to its one-year price target of 2.00. 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. CIE has a beta of 1.71 and ENRJ’s beta is 6.23. CIE’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CIE has a short ratio of 6.45 compared to a short interest of 0.27 for ENRJ. This implies that the market is currently less bearish on the outlook for ENRJ.
EnerJex Resources, Inc. (NYSE:ENRJ) beats Cobalt International Energy, Inc. (NYSE:CIE) on a total of 7 of the 12 factors compared between the two stocks. ENRJ is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, ENRJ has better sentiment signals based on short interest.