Earnings

A Side-by-side Analysis of Thermo Fisher Scientific Inc. (TMO) and Organovo Holdings, Inc. (ONVO)

Thermo Fisher Scientific Inc. (NYSE:TMO) shares are up more than 37.43% this year and recently increased 0.21% or $0.41 to settle at $193.92. Organovo Holdings, Inc. (NASDAQ:ONVO), on the other hand, is down -55.46% year to date as of 11/27/2017. It currently trades at $1.51 and has returned 2.72% during the past week.

Thermo Fisher Scientific Inc. (NYSE:TMO) and Organovo Holdings, Inc. (NASDAQ:ONVO) are the two most active stocks in the Medical Laboratories & Research industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

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 TMO to grow earnings at a 12.19% annual rate over the next 5 years.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Thermo Fisher Scientific Inc. (TMO) has an EBITDA margin of 21.16%. This suggests that TMO underlying business is more profitable TMO’s ROI is 6.40% while ONVO has a ROI of -61.90%. The interpretation is that TMO’s business generates a higher return on investment than ONVO’s.

Cash Flow 




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 +1.90. Comparatively, ONVO’s free cash flow per share was -0.06. On a percent-of-sales basis, TMO’s free cash flow was 4.17% while ONVO 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 measure a company’s ability to meet short-term obligations and longer-term debts. TMO has a current ratio of 1.30 compared to 12.90 for ONVO. This means that ONVO can more easily cover its most immediate liabilities over the next twelve months. TMO’s debt-to-equity ratio is 0.89 versus a D/E of 0.00 for ONVO. TMO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TMO trades at a forward P/E of 18.31, a P/B of 3.11, and a P/S of 3.89, compared to a P/B of 3.08, and a P/S of 37.31 for ONVO. 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

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. TMO is currently priced at a -11.48% to its one-year price target of 219.07. Comparatively, ONVO is -39.6% relative to its price target of 2.50. This suggests that ONVO 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 1.70 for ONVO, which implies that analysts are more bullish on the outlook for ONVO.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. TMO has a beta of 1.09 and ONVO’s beta is 3.11. TMO’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. TMO has a short ratio of 2.78 compared to a short interest of 14.24 for ONVO. This implies that the market is currently less bearish on the outlook for TMO.

Summary

Thermo Fisher Scientific Inc. (NYSE:TMO) beats Organovo Holdings, Inc. (NASDAQ:ONVO) on a total of 9 of the 14 factors compared between the two stocks. TMO is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, TMO has better sentiment signals based on short interest.

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