Stone Energy (NASDAQ: AREX) and Approach Resources (NASDAQ:AREX) are both small-cap oils/energy companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, profitability, risk, institutional ownership, earnings, dividends and analyst recommendations.

Earnings and Valuation

This table compares Stone Energy and Approach Resources’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Stone Energy $319.20 million 2.22 $382.67 million N/A N/A
Approach Resources $105.35 million 1.96 -$112.35 million ($0.36) -6.06

Stone Energy has higher revenue and earnings than Approach Resources.

Profitability

This table compares Stone Energy and Approach Resources’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Stone Energy 9.64% 9.36% 3.31%
Approach Resources 18.38% -4.52% -2.42%

Insider and Institutional Ownership

98.9% of Stone Energy shares are owned by institutional investors. Comparatively, 75.1% of Approach Resources shares are owned by institutional investors. 3.5% of Stone Energy shares are owned by insiders. Comparatively, 5.0% of Approach Resources shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of current ratings and target prices for Stone Energy and Approach Resources, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stone Energy 0 2 2 0 2.50
Approach Resources 0 4 0 0 2.00

Stone Energy presently has a consensus target price of $2.83, suggesting a potential downside of 92.02%. Approach Resources has a consensus target price of $3.33, suggesting a potential upside of 52.91%. Given Approach Resources’ higher probable upside, analysts clearly believe Approach Resources is more favorable than Stone Energy.

Volatility & Risk

Stone Energy has a beta of 1.48, meaning that its share price is 48% more volatile than the S&P 500. Comparatively, Approach Resources has a beta of 2.7, meaning that its share price is 170% more volatile than the S&P 500.

Summary

Stone Energy beats Approach Resources on 8 of the 12 factors compared between the two stocks.

About Stone Energy

Stone Energy Corporation, an independent oil and natural gas company, engages in the acquisition, exploration, exploitation, development, and operation of oil and gas properties in the Gulf of Mexico. As of December 31, 2017, it had an estimated proved oil and natural gas reserves of approximately 32.5 million barrels of oil equivalent. The company was founded in 1993 and is headquartered in Lafayette, Louisiana.

About Approach Resources

Approach Resources, Inc., an independent energy company, focuses on the acquisition, exploration, development, and production of unconventional oil and gas reserves in the United States. The company's properties are primarily located in the Permian Basin in west Texas. It also owns interests in east Texas Basin. As of December 31, 2017, its estimated proved reserves were 181.5 million barrels of oil equivalent located in Crockett and Schleicher counties, Texas. The company also owned and operated 813 producing oil and gas wells in the Permian Basin. Approach Resources, Inc. was incorporated in 2002 and is headquartered in Fort Worth, Texas.

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