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Which of these 2 stocks can turn out to be absolute gem? – Tronox Limited (TROX), Collegium Pharmaceutical, Inc. (COLL)

The shares of Tronox Limited have increased by more than 5.07% this year alone. The shares recently went up by 4.01% or $0.83 and now trades at $21.55. The shares of Collegium Pharmaceutical, Inc. (NASDAQ:COLL), has jumped by 9.91% year to date as of 01/11/2018. The shares currently trade at $20.29 and have been able to report a change of 7.81% over the past one week.

The stock of Tronox Limited and Collegium Pharmaceutical, Inc. were two of the most active stocks on Thursday. 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. TROX has an EBITDA margin of 3.74%, this implies that the underlying business of TROX is more profitable. The ROI of TROX is 3.80% while that of COLL is -67.60%. These figures suggest that TROX ventures generate a higher ROI than that of COLL.



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, TROX’s free cash flow per share is a positive 0, while that of COLL is negative -0.82.

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 TROX is 8.40 and that of COLL is 4.50. This implies that it is easier for TROX to cover its immediate obligations over the next 12 months than COLL. The debt ratio of TROX is 4.20 compared to 0.02 for COLL. TROX can be able to settle its long-term debts and thus is a lower financial risk than COLL.

Valuation

TROX currently trades at a forward P/E of 19.63, a P/B of 3.44, and a P/S of 1.46 while COLL trades at a P/B of 6.26, and a P/S of 36.05. This means that looking at the earnings, book values and sales basis, TROX 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 TROX is currently at a -19.59% to its one-year price target of 26.80. Looking at its rival pricing, COLL is at a -15.46% relative to its price target of 24.00. This figure implies that over the next one year, COLL is a better investment.

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), TROX is given a 2.40 while 1.60 placed for COLL. This means that analysts are more bullish on the outlook for TROX 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 TROX is 1.56 while that of COLL is just 5.09. This means that analysts are more bullish on the forecast for TROX stock.

Conclusion

The stock of Collegium Pharmaceutical, Inc. defeats that of Tronox Limited when the two are compared, with COLL taking 4 out of the total factors that were been considered. COLL 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, COLL is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for COLL is better on when it is viewed on short interest.

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