Earnings

Which of these 2 stocks can turn out to be absolute gem? – Applied Materials, Inc. (AMAT), Organovo Holdings, Inc. (ONVO)

The shares of Applied Materials, Inc. have increased by more than 2.76% this year alone. The shares recently went down by -0.72% or -$0.38 and now trades at $52.53. The shares of Organovo Holdings, Inc. (NASDAQ:ONVO), has jumped by 4.48% year to date as of 06/06/2018. The shares currently trade at $1.40 and have been able to report a change of -27.46% over the past one week.

The stock of Applied Materials, Inc. and Organovo Holdings, Inc. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. AMAT has an EBITDA margin of 31.39%, this implies that the underlying business of AMAT is more profitable. The ROI of AMAT is 24.40% while that of ONVO is -79.10%. These figures suggest that AMAT ventures generate a higher ROI than that of ONVO.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, AMAT’s free cash flow per share is a positive 2.57, while that of ONVO is negative -0.12.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for AMAT is 2.60 and that of ONVO is 10.00. This implies that it is easier for AMAT to cover its immediate obligations over the next 12 months than ONVO. The debt ratio of AMAT is 0.00 compared to 0.00 for ONVO. ONVO can be able to settle its long-term debts and thus is a lower financial risk than AMAT.

Valuation

AMAT currently trades at a forward P/E of 11.25, a P/B of 7.68, and a P/S of 3.25 while ONVO trades at a P/B of 3.50, and a P/S of 49.02. This means that looking at the earnings, book values and sales basis, AMAT is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of AMAT is currently at a -22.44% to its one-year price target of 67.73. Looking at its rival pricing, ONVO is at a -37.78% relative to its price target of 2.25.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), AMAT is given a 1.80 while 1.80 placed for ONVO. This means that analysts are equally bullish on their outlook for the two stocks stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for AMAT is 1.06 while that of ONVO is just 12.99. This means that analysts are more bullish on the forecast for AMAT stock.

Conclusion

The stock of Organovo Holdings, Inc. defeats that of Applied Materials, Inc. when the two are compared, with ONVO taking 5 out of the total factors that were been considered. ONVO happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ONVO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ONVO is better on when it is viewed on short interest.

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