Western Midstream Partners, LP (NYSE:WES) shares are down more than -28.60% this year and recently decreased -2.41% or -$0.49 to settle at $19.80. Nutanix, Inc. (NASDAQ:NTNX), on the other hand, is down -34.07% year to date as of 11/07/2019. It currently trades at $27.42 and has returned -6.16% during the past week.
Western Midstream Partners, LP (NYSE:WES) and Nutanix, Inc. (NASDAQ:NTNX) are the two most active stocks in the Oil & Gas Pipelines 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect WES to grow earnings at a 12.40% annual rate over the next 5 years.
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Western Midstream Partners, LP (WES) has an EBITDA margin of 52.2%. This suggests that WES underlying business is more profitable WES’s ROI is 8.20% while NTNX has a ROI of -93.90%. The interpretation is that WES’s business generates a higher return on investment than NTNX’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. WES’s free cash flow (“FCF”) per share for the trailing twelve months was -0.53. Comparatively, NTNX’s free cash flow per share was -0.18. On a percent-of-sales basis, WES’s free cash flow was -12.07% while NTNX converted -2.75% of its revenues into cash flow. This means that, for a given level of sales, NTNX is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. WES has a current ratio of 0.70 compared to 2.10 for NTNX. This means that NTNX can more easily cover its most immediate liabilities over the next twelve months. WES’s debt-to-equity ratio is 2.25 versus a D/E of 2.46 for NTNX. NTNX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
WES trades at a forward P/E of 9.44, a P/B of 2.69, and a P/S of 3.63, compared to a P/B of 27.42, and a P/S of 4.31 for NTNX. 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. WES is currently priced at a -33.85% to its one-year price target of 29.93. Comparatively, NTNX is -22.34% relative to its price target of 35.31. This suggests that WES 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. WES has a short ratio of 4.70 compared to a short interest of 3.49 for NTNX. This implies that the market is currently less bearish on the outlook for NTNX.
Nutanix, Inc. (NASDAQ:NTNX) beats Western Midstream Partners, LP (NYSE:WES) on a total of 7 of the 14 factors compared between the two stocks. NTNX is growing fastly, has a higher cash conversion rate and higher liquidity. Finally, NTNX has better sentiment signals based on short interest.