Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), on the other hand, is up 10.58% year to date as of 01/08/2018. It currently trades at $11.71 and has returned 10.58% during the past week.
Nxt-ID, Inc. (NASDAQ:NXTD) and Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) are the two most active stocks in the Security & Protection Services 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, KTOS is expected to grow at a 13.00% annual rate. All else equal, KTOS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Nxt-ID, Inc. (NXTD) has an EBITDA margin of 14.66%. This suggests that NXTD underlying business is more profitable NXTD’s ROI is -53.20% while KTOS has a ROI of -3.70%. The interpretation is that KTOS’s business generates a higher return on investment than NXTD’s.
Cash is king when it comes to investing. NXTD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.16. Comparatively, KTOS’s free cash flow per share was -0.13. On a percent-of-sales basis, NXTD’s free cash flow was -0.05% while KTOS converted -0% of its revenues into cash flow. This means that, for a given level of sales, KTOS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NXTD has a current ratio of 0.60 compared to 2.90 for KTOS. This means that KTOS can more easily cover its most immediate liabilities over the next twelve months. NXTD’s debt-to-equity ratio is 2.54 versus a D/E of 0.00 for KTOS. NXTD is therefore the more solvent of the two companies, and has lower financial risk.
NXTD trades at a P/B of 7.15, and a P/S of 3.34, compared to a forward P/E of 35.92, a P/B of 1.99, and a P/S of 1.61 for KTOS. NXTD is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. NXTD is currently priced at a -45.17% to its one-year price target of 6.00. Comparatively, KTOS is -14.65% relative to its price target of 13.72. This suggests that NXTD 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 2.00 for NXTD and 2.30 for KTOS, which implies that analysts are more bullish on the outlook for KTOS.
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. NXTD has a beta of -4.28 and KTOS’s beta is 2.00. NXTD’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. NXTD has a short ratio of 0.38 compared to a short interest of 4.54 for KTOS. This implies that the market is currently less bearish on the outlook for NXTD.
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) beats Nxt-ID, Inc. (NASDAQ:NXTD) on a total of 8 of the 14 factors compared between the two stocks. KTOS is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, KTOS is the cheaper of the two stocks on book value and sales basis, Finally, CY has better sentiment signals based on short interest.