Keane Group, Inc. (NYSE:FRAC) shares are down more than -24.94% this year and recently decreased -1.29% or -$0.08 to settle at $6.14. Eastman Chemical Company (NYSE:EMN), on the other hand, is up 2.13% year to date as of 09/12/2019. It currently trades at $74.67 and has returned 10.64% during the past week.
Keane Group, Inc. (NYSE:FRAC) and Eastman Chemical Company (NYSE:EMN) are the two most active stocks in the Oil & Gas Equipment & Services 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, EMN is expected to grow at a 4.51% annual rate. All else equal, EMN’s higher growth rate would imply a greater potential for capital appreciation.
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. , compared to an EBITDA margin of 19.77% for Eastman Chemical Company (EMN). FRAC’s ROI is 9.60% while EMN has a ROI of 10.90%. The interpretation is that EMN’s business generates a higher return on investment than FRAC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. FRAC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.27. Comparatively, EMN’s free cash flow per share was +1.75. On a percent-of-sales basis, FRAC’s free cash flow was 1.33% while EMN converted 2.36% of its revenues into cash flow. This means that, for a given level of sales, EMN is able to generate more free cash flow for investors.
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. FRAC has a current ratio of 1.60 compared to 1.60 for EMN. This means that FRAC can more easily cover its most immediate liabilities over the next twelve months. FRAC’s debt-to-equity ratio is 0.75 versus a D/E of 1.08 for EMN. EMN is therefore the more solvent of the two companies, and has lower financial risk.Valuation
FRAC trades at a forward P/E of 42.64, a P/B of 1.38, and a P/S of 0.34, compared to a forward P/E of 8.71, a P/B of 1.75, and a P/S of 1.06 for EMN. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. FRAC is currently priced at a -40.79% to its one-year price target of 10.37. Comparatively, EMN is -13.85% relative to its price target of 86.67. This suggests that FRAC is the better investment over the next year.
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. FRAC has a short ratio of 3.98 compared to a short interest of 1.72 for EMN. This implies that the market is currently less bearish on the outlook for EMN.
Eastman Chemical Company (NYSE:EMN) beats Keane Group, Inc. (NYSE:FRAC) on a total of 7 of the 14 factors compared between the two stocks. EMN higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, EMN has better sentiment signals based on short interest.