Finance

Comparing Farmer Bros. Co. (FARM) and Shineco, Inc. (TYHT)

Farmer Bros. Co. (NASDAQ:FARM) shares are down more than -19.28% this year and recently increased 7.90% or $1.9 to settle at $25.95. Shineco, Inc. (NASDAQ:TYHT), on the other hand, is down -24.35% year to date as of 05/16/2018. It currently trades at $1.74 and has returned 16.00% during the past week.

Farmer Bros. Co. (NASDAQ:FARM) and Shineco, Inc. (NASDAQ:TYHT) are the two most active stocks in the Processed & Packaged Goods industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FARM to grow earnings at a 30.00% annual rate over the next 5 years.

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., compared to an EBITDA margin of 32.93% for Shineco, Inc. (TYHT). FARM’s ROI is 10.70% while TYHT has a ROI of 9.50%. The interpretation is that FARM’s business generates a higher return on investment than TYHT’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. FARM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, TYHT’s free cash flow per share was +0.14. On a percent-of-sales basis, FARM’s free cash flow was -0% while TYHT converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, TYHT 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. FARM has a current ratio of 0.90 compared to 6.70 for TYHT. This means that TYHT can more easily cover its most immediate liabilities over the next twelve months. FARM’s debt-to-equity ratio is 0.42 versus a D/E of 0.02 for TYHT. FARM is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FARM trades at a forward P/E of 34.37, a P/B of 2.11, and a P/S of 0.75, compared to a P/B of 0.52, and a P/S of 1.08 for TYHT. FARM 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. FARM is currently priced at a -36.52% to its one-year price target of 40.88.

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. FARM has a short ratio of 5.34 compared to a short interest of 1.21 for TYHT. This implies that the market is currently less bearish on the outlook for TYHT.

Summary




Shineco, Inc. (NASDAQ:TYHT) beats Farmer Bros. Co. (NASDAQ:FARM) on a total of 10 of the 13 factors compared between the two stocks. TYHT is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, TYHT is the cheaper of the two stocks on an earnings and book value, Finally, TYHT has better sentiment signals based on short interest.

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