Thermo Fisher Scientific Inc. (NYSE:TMO) and OpGen, Inc. (NASDAQ:OPGN) are the two most active stocks in the Medical Laboratories & Research 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.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. TMO’s ROI is 6.40% while OPGN has a ROI of -422.40%. The interpretation is that TMO’s business generates a higher return on investment than OPGN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. TMO’s free cash flow (“FCF”) per share for the trailing twelve months was +1.78. Comparatively, OPGN’s free cash flow per share was -0.12. On a percent-of-sales basis, TMO’s free cash flow was 3.9% while OPGN converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, TMO is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. TMO has a current ratio of 1.50 compared to 0.30 for OPGN. This means that TMO can more easily cover its most immediate liabilities over the next twelve months.
TMO trades at a forward P/E of 18.19, a P/B of 3.37, and a P/S of 4.00, compared to a forward P/S of 5.12 for OPGN. TMO is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. TMO is currently priced at a -2.91% to its one-year price target of $199.38. Comparatively, OPGN is -78.67% relative to its price target of $1.50. This suggests that OPGN is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.50 for TMO and 2.00 for OPGN, which implies that analysts are more bullish on the outlook for OPGN.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. TMO has a beta of 1.05.
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. TMO has a short ratio of 2.08 compared to a short interest of 2.31 for OPGN. This implies that the market is currently less bearish on the outlook for TMO.
Thermo Fisher Scientific Inc. (NYSE:TMO) beats OpGen, Inc. (NASDAQ:OPGN) on a total of 8 of the 9 factors compared between the two stocks. TMO is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, TMO has better sentiment signals based on short interest.