Supply chain issues caused by tight container capacity and port congestion have led to rising shipping rates. However, the need for shipping services to transport raw materials worldwide should drive the shipping industry’s growth.
Investor optimism surrounding the industry is evident in the SonicShares Global Shipping ETF’s (BOAT) 13.4% gains year-to-date compared to the SPDR S&P 500 Trust ETF’s (SPY) 7.8% loss. The global cargo shipping market is expected to grow at a 5.2% CAGR to $22.15 billion by 2030.
Star Bulk Carriers Corporation (SBLK) and Golden Ocean Group Limited (GOGL) are two prominent players in the marine shipping industry. SBLK is an Athens, Greece-based shipping company that provides ocean transportation for dry bulk cargoes and worldwide vessel management services. GOGL owns and operates a fleet of dry bulk carrier vessels, bareboat vessels, chartered vessels, commercial management vessels, and new buildings. Both companies commonly transport bulk commodities, such as ores, coal, grains, and fertilizers.
While GOGL has gained 11.6% over the past six months, SBLK surged 42%. Which of these stocks is a better pick now?
Recent Financial Results
SBLK’s total revenues for its fiscal 2021 fourth quarter ended December 31, 2021, increased 168.7% year-over-year to $499.86 million. The company’s operating income came in at $313.89 million, up 620.7% from its year-ago period. While its adjusted net income increased 925% year-over-year to $305.45 million, its adjusted EPS increased 886.7% to $2.96. As of December 31, 2021, the company had $471.25 million in cash and cash equivalents and restricted cash.
For its fiscal 2021 fourth quarter ended December 31, 2021, GOGL’s total operating revenues increased 126.3% year-over-year to $381.81 million. The company’s operating income came in at $204.39 million, up 630% from the prior-year period. GOGL’s net income came in at $203.82 million, indicating a 703.4% year-over-year improvement. Its EPS increased 461.1% year-over-year at $1.01. The company had $210.02 million in cash, cash equivalents, and restricted cash as of December 31, 2021.
Past and Expected Financial Performance
SBLK’s EBITDA and tangible book value have increased at CAGRs of 52.1% and 11%, respectively, over the past three years. The company’s total assets have increased at a CAGR of 7.5% over the past three years.
SBLK’s EPS is expected to grow 5.6% year-over-year in fiscal 2022 second quarter, ending June 30, 2022. Its revenue is expected to grow marginally from the prior year in the same quarter.
In comparison, GOGL’s EBITDA and tangible book value have increased at CAGRs of 35.3% and 8.6%, respectively, over the past three years. The company’s total assets have grown at a CAGR of 5.4% over the past three years.
Analysts expect GOGL’s EPS to decline 18% year-over-year in fiscal 2022 second quarter, ending June 30, 2022. Its revenue is expected to decline 7% year-over-year in fiscal 2022.
Valuation
In terms of forward EV/Sales, GOGL is currently trading at 4.74x, 24.1% higher than SBLK’s 3.82x. In terms of forward EV/EBITDA, SBLK’s 5.20x compares with GOGL’s 7.29x.
Profitability
SBLK’s trailing-12-month revenue is almost 1.2 times GOGL’s. However, SBLK is more profitable, with a 62% EBITDA margin versus GOGL’s 52.8%.
Furthermore, SBLK’s levered free cash flow of 14% compares with GOGL’s negative value.
POWR Ratings
While SBLK has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, GOGL has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
SBLK has a B grade for Quality, consistent with its higher-than-industry profitability ratios. SBLK’s 14% trailing-12-month levered free cash flow is 203.2% higher than the 4.6% industry average. GOGL’s C grade for Quality is in sync with its negative levered free cash flow value.
SBLK has a B grade for Sentiment, consistent with analysts’ higher earnings estimates for the company. SBLK’s EPS is expected to be $1.33 in the fiscal 2022 second quarter ending June 30, 2022, representing a 5.6% rise from the prior-year period. GOGL’s C grade for Sentiment reflects analysts’ lower earnings estimates. Analysts expect the company’s EPS to be $0.37 in the fiscal 2022 second quarter ending June 30, 2022, an 18% year-over-year decline.
Of the 45 stocks in the B-rated Shipping industry, SBLK is ranked #5, while GOGL is ranked #33.
Beyond what we have stated above, our POWR Ratings system has also rated SBLK and GOGL for Stability, Value, Growth, and Momentum. Get all SBLK ratings here. Also, click here to see the additional POWR Ratings for GOGL.
The Winner
The growing demand for shipping services to transport dry bulk commodities should benefit SBLK and GOGL in the coming months, despite rising shipping rates. However, lower valuations and higher profitability make SBLK a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Shipping industry.
SBLK shares were trading at $30.03 per share on Monday afternoon, down $1.73 (-5.45%). Year-to-date, SBLK has gained 32.47%, versus a -8.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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