- R. Grace & Co. (NYSE:GRA) shares are up more than 8.71% this year and recently increased 0.41% or $0.3 to settle at $73.53. Oil-Dri Corporation of America (NYSE:ODC), on the other hand, is up 15.00% year to date as of 11/20/2017. It currently trades at $43.94 and has returned 6.19% during the past week.
W. R. Grace & Co. (NYSE:GRA) and Oil-Dri Corporation of America (NYSE:ODC) are the two most active stocks in the Specialty Chemicals industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
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 GRA to grow earnings at a 10.25% annual rate over the next 5 years.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 15.21% for Oil-Dri Corporation of America (ODC). GRA’s ROI is 5.50% while ODC has a ROI of 8.30%. The interpretation is that ODC’s business generates a higher return on investment than GRA’s.
If there’s one thing investors care more about than earnings, it’s cash flow. GRA’s free cash flow (“FCF”) per share for the trailing twelve months was +1.27. Comparatively, ODC’s free cash flow per share was +0.01. On a percent-of-sales basis, GRA’s free cash flow was 5.38% while ODC converted 0% of its revenues into cash flow. This means that, for a given level of sales, GRA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. GRA has a current ratio of 1.60 compared to 2.90 for ODC. This means that ODC can more easily cover its most immediate liabilities over the next twelve months. GRA’s debt-to-equity ratio is 3.99 versus a D/E of 0.10 for ODC. GRA is therefore the more solvent of the two companies, and has lower financial risk.
GRA trades at a forward P/E of 19.92, a P/B of 12.70, and a P/S of 2.93, compared to a P/B of 2.48, and a P/S of 1.22 for ODC. GRA is the expensive of the two stocks on an earnings, book value and sales basis. 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. GRA is currently priced at a -12.86% to its one-year price target of 84.38. Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. GRA has a beta of 1.19 and ODC’s beta is 1.08. ODC’s shares are therefore the less volatile of the two stocks.
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. GRA has a short ratio of 2.59 compared to a short interest of 2.99 for ODC. This implies that the market is currently less bearish on the outlook for GRA.
Oil-Dri Corporation of America (NYSE:ODC) beats W. R. Grace & Co. (NYSE:GRA) on a total of 8 of the 13 factors compared between the two stocks. ODC is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, ODC is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, IOSP has better sentiment signals based on short interest.
This article was originally published on this site