Kosmos Energy Ltd. (NYSE:KOS) shares are up more than 50.61% this year and recently decreased -3.01% or -$0.19 to settle at $6.13. Karyopharm Therapeutics Inc. (NASDAQ:KPTI), on the other hand, is up 12.91% year to date as of 09/12/2019. It currently trades at $10.58 and has returned 11.96% during the past week.
Kosmos Energy Ltd. (NYSE:KOS) and Karyopharm Therapeutics Inc. (NASDAQ:KPTI) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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 KOS to grow earnings at a 23.80% annual rate over the next 5 years.
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Kosmos Energy Ltd. (KOS) has an EBITDA margin of 30.78%. This suggests that KOS underlying business is more profitable KOS’s ROI is -3.80% while KPTI has a ROI of -62.90%. The interpretation is that KOS’s business generates a higher return on investment than KPTI’s.Cash Flow
Cash is king when it comes to investing. KOS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.29. Comparatively, KPTI’s free cash flow per share was -0.78. On a percent-of-sales basis, KOS’s free cash flow was -0.01% while KPTI converted -0.16% of its revenues into cash flow. This means that, for a given level of sales, KOS 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. KOS has a current ratio of 1.10 compared to 6.90 for KPTI. This means that KPTI can more easily cover its most immediate liabilities over the next twelve months. KOS’s debt-to-equity ratio is 2.41 versus a D/E of 1.29 for KPTI. KOS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
KOS trades at a forward P/E of 16.01, a P/B of 2.79, and a P/S of 2.02, compared to a P/B of 7.84, and a P/S of 63.98 for KPTI. 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. KOS is currently priced at a -33.22% to its one-year price target of 9.18. Comparatively, KPTI is -46.81% relative to its price target of 19.89. This suggests that KPTI is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. KOS has a beta of 1.97 and KPTI’s beta is 2.40. KOS’s shares are therefore the less volatile of the two stocks.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. KOS has a short ratio of 4.83 compared to a short interest of 4.52 for KPTI. This implies that the market is currently less bearish on the outlook for KPTI.
Kosmos Energy Ltd. (NYSE:KOS) beats Karyopharm Therapeutics Inc. (NASDAQ:KPTI) on a total of 8 of the 14 factors compared between the two stocks. KOS is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, KOS is the cheaper of the two stocks on book value and sales basis,