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Critical Comparison: MiMedx Group, Inc. (MDXG) vs. Barnes & Noble, Inc. (BKS)

MiMedx Group, Inc. (NASDAQ:MDXG) shares are down more than -56.38% this year and recently decreased -7.41% or -$0.44 to settle at $5.50. Barnes & Noble, Inc. (NYSE:BKS), on the other hand, is down -12.69% year to date as of 06/13/2018. It currently trades at $5.85 and has returned -4.88% during the past week.

MiMedx Group, Inc. (NASDAQ:MDXG) and Barnes & Noble, Inc. (NYSE:BKS) 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MDXG to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, BKS is expected to grow at a 10.00% annual rate. All else equal, MDXG’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. MiMedx Group, Inc. (MDXG) has an EBITDA margin of 13.52%. This suggests that MDXG underlying business is more profitable MDXG’s ROI is 9.30% while BKS has a ROI of 4.60%. The interpretation is that MDXG’s business generates a higher return on investment than BKS’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. MDXG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, BKS’s free cash flow per share was +2.52. On a percent-of-sales basis, MDXG’s free cash flow was 0.01% while BKS converted 4.71% of its revenues into cash flow. This means that, for a given level of sales, BKS 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. MDXG has a current ratio of 3.20 compared to 1.00 for BKS. This means that MDXG can more easily cover its most immediate liabilities over the next twelve months. MDXG’s debt-to-equity ratio is 0.00 versus a D/E of 0.13 for BKS. BKS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MDXG trades at a forward P/E of 11.88, a P/B of 4.14, and a P/S of 2.71, compared to a forward P/E of 10.35, a P/B of 0.96, and a P/S of 0.12 for BKS. MDXG is the expensive 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. MDXG is currently priced at a -64.12% to its one-year price target of 15.33. Comparatively, BKS is 6.36% relative to its price target of 5.50. This suggests that MDXG is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MDXG has a beta of 1.44 and BKS’s beta is 1.96. MDXG’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MDXG has a short ratio of 19.16 compared to a short interest of 6.66 for BKS. This implies that the market is currently less bearish on the outlook for BKS.

Summary

MiMedx Group, Inc. (NASDAQ:MDXG) beats Barnes & Noble, Inc. (NYSE:BKS) on a total of 8 of the 14 factors compared between the two stocks. MDXG is growing fastly, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. MDXG is more undervalued relative to its price target. Finally, CLDX has better sentiment signals based on short interest.

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