Wright Medical Group N.V. (NASDAQ:WMGI) shares are down more than -10.50% this year and recently decreased -0.85% or -$0.17 to settle at $19.87. MiMedx Group, Inc. (NASDAQ:MDXG), on the other hand, is up 22.60% year to date as of 02/13/2018. It currently trades at $15.46 and has returned -9.43% during the past week.
Wright Medical Group N.V. (NASDAQ:WMGI) and MiMedx Group, Inc. (NASDAQ:MDXG) are the two most active stocks in the Medical Appliances & Equipment 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect WMGI to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, MDXG is expected to grow at a 15.00% annual rate. All else equal, All else equal, the two stocks’ identical expected growth rates would imply a similar potential for capital appreciation..
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. EBITDA margin of 13.52% for MiMedx Group, Inc. (MDXG). WMGI’s ROI is -7.30% while MDXG has a ROI of 9.30%. The interpretation is that MDXG’s business generates a higher return on investment than WMGI’s.
The value of a stock is simply the present value of its future free cash flows. WMGI’s free cash flow (“FCF”) per share for the trailing twelve months was -1.30. Comparatively, MDXG’s free cash flow per share was +0.14. On a percent-of-sales basis, WMGI’s free cash flow was -0.02% while MDXG converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, MDXG 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. WMGI has a current ratio of 1.30 compared to 3.20 for MDXG. This means that MDXG can more easily cover its most immediate liabilities over the next twelve months. WMGI’s debt-to-equity ratio is 1.63 versus a D/E of 0.00 for MDXG. WMGI is therefore the more solvent of the two companies, and has lower financial risk.
WMGI trades at a forward P/E of 19870.00, a P/B of 3.87, and a P/S of 2.92, compared to a forward P/E of 33.25, a P/B of 11.62, and a P/S of 5.67 for MDXG. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. WMGI is currently priced at a -33.94% to its one-year price target of 30.08. Comparatively, MDXG is -18.63% relative to its price target of 19.00. This suggests that WMGI 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 1.90 for WMGI and 1.80 for MDXG, which implies that analysts are more bullish on the outlook for WMGI.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. WMGI has a beta of 0.73 and MDXG’s beta is 1.10. WMGI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.WMGI has a short ratio of 9.69 compared to a short interest of 20.74 for MDXG. This implies that the market is currently less bearish on the outlook for WMGI.
MiMedx Group, Inc. (NASDAQ:MDXG) beats Wright Medical Group N.V. (NASDAQ:WMGI) on a total of 8 of the 14 factors compared between the two stocks. MDXG , 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. Finally, HSIC has better sentiment signals based on short interest.