Earnings

A Side-by-side Analysis of Tronox Limited (TROX) and ChromaDex Corporation (CDXC)

Tronox Limited (NYSE:TROX) shares are down more than -4.24% this year and recently increased 0.05% or $0.01 to settle at $19.64. ChromaDex Corporation (NASDAQ:CDXC), on the other hand, is down -19.56% year to date as of 02/01/2018. It currently trades at $4.73 and has returned -4.44% during the past week.

Tronox Limited (NYSE:TROX) and ChromaDex Corporation (NASDAQ:CDXC) are the two most active stocks in the Chemicals – Major Diversified industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

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. Tronox Limited (TROX) has an EBITDA margin of 3.74%. This suggests that TROX underlying business is more profitable TROX’s ROI is 3.80% while CDXC has a ROI of -24.10%. The interpretation is that TROX’s business generates a higher return on investment than CDXC’s.



Cash Flow 

If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, TROX’s free cash flow was 0% while CDXC converted -0% of its revenues into cash flow. This means that, for a given level of sales, TROX 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. TROX has a current ratio of 8.40 compared to 5.00 for CDXC. This means that TROX can more easily cover its most immediate liabilities over the next twelve months. TROX’s debt-to-equity ratio is 4.20 versus a D/E of 0.02 for CDXC. TROX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TROX trades at a forward P/E of 17.26, a P/B of 3.14, and a P/S of 1.27, compared to a forward P/E of 94.60, a P/B of 6.57, and a P/S of 12.00 for CDXC. TROX is the cheaper 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. TROX is currently priced at a -23.28% to its one-year price target of 25.60. Comparatively, CDXC is -36.93% relative to its price target of 7.50. This suggests that CDXC 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 2.40 for TROX and 1.50 for CDXC, which implies that analysts are more bullish on the outlook for TROX.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. TROX has a beta of 3.19 and CDXC’s beta is 1.03. CDXC’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. TROX has a short ratio of 1.44 compared to a short interest of 5.80 for CDXC. This implies that the market is currently less bearish on the outlook for TROX.

Summary

Tronox Limited (NYSE:TROX) beats ChromaDex Corporation (NASDAQ:CDXC) on a total of 8 of the 14 factors compared between the two stocks. TROX is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. In terms of valuation, TROX is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TROX has better sentiment signals based on short interest.

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