KMG Chemicals, Inc. (NYSE:KMG) shares are up more than 19.95% this year and recently increased 12.41% or $8.75 to settle at $79.26. LM Funding America, Inc. (NASDAQ:LMFA), on the other hand, is down -65.77% year to date as of 06/12/2018. It currently trades at $0.54 and has returned -3.29% during the past week.
KMG Chemicals, Inc. (NYSE:KMG) and LM Funding America, Inc. (NASDAQ:LMFA) are the two most active stocks in the Specialty Chemicals 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.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect KMG to grow earnings at a 22.70% annual rate over the next 5 years.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. KMG Chemicals, Inc. (KMG) has an EBITDA margin of 16.04%. This suggests that KMG underlying business is more profitable KMG’s ROI is 4.00% while LMFA has a ROI of -890.30%. The interpretation is that KMG’s business generates a higher return on investment than LMFA’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. KMG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.75. Comparatively, LMFA’s free cash flow per share was -0.02. On a percent-of-sales basis, KMG’s free cash flow was 0% while LMFA converted -0% of its revenues into cash flow. This means that, for a given level of sales, KMG is able to generate more free cash flow for investors.Liquidity and Financial Risk
KMG’s debt-to-equity ratio is 0.88 versus a D/E of 0.00 for LMFA. KMG is therefore the more solvent of the two companies, and has lower financial risk.
KMG trades at a forward P/E of 20.72, a P/B of 3.20, and a P/S of 3.00, compared to a P/B of 3.86, and a P/S of 0.86 for LMFA. KMG is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. KMG is currently priced at a 7.59% to its one-year price target of 73.67.
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. KMG has a short ratio of 2.37 compared to a short interest of 1.81 for LMFA. This implies that the market is currently less bearish on the outlook for LMFA.Summary
LM Funding America, Inc. (NASDAQ:LMFA) beats KMG Chemicals, Inc. (NYSE:KMG) on a total of 6 of the 13 factors compared between the two stocks. LMFA is growing fastly. In terms of valuation, LMFA is the cheaper of the two stocks on an earnings and sales basis, Finally, LMFA has better sentiment signals based on short interest.