Earnings

Are These Stocks A Sure Bet? – Diplomat Pharmacy, Inc. (DPLO), Evoqua Water Technologies Corp. (AQUA)

The shares of Diplomat Pharmacy, Inc. have decreased by more than -3.29% this year alone. The shares recently went down by -9.55% or -$2.05 and now trades at $19.41. The shares of Evoqua Water Technologies Corp. (NYSE:AQUA), has slumped by -14.51% year to date as of 08/07/2018. The shares currently trade at $20.27 and have been able to report a change of -5.01% over the past one week.

The stock of Diplomat Pharmacy, Inc. and Evoqua Water Technologies Corp. were two of the most active stocks on Tuesday. 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. DPLO has an EBITDA margin of 2.5%, this implies that the underlying business of DPLO is more profitable. The ROI of DPLO is 1.20% while that of AQUA is 0.60%. These figures suggest that DPLO ventures generate a higher ROI than that of AQUA.

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 DPLO is 0.90 and that of AQUA is 1.90. This implies that it is easier for DPLO to cover its immediate obligations over the next 12 months than AQUA. The debt ratio of DPLO is 0.79 compared to 2.30 for AQUA. AQUA can be able to settle its long-term debts and thus is a lower financial risk than DPLO.

Valuation



DPLO currently trades at a forward P/E of 17.10, a P/B of 1.90, and a P/S of 0.30 while AQUA trades at a forward P/E of 22.65, a P/B of 6.48, and a P/S of 1.78. This means that looking at the earnings, book values and sales basis, DPLO 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 DPLO is currently at a -25.35% to its one-year price target of 26.00. Looking at its rival pricing, AQUA is at a -19.72% relative to its price target of 25.25.

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), DPLO is given a 2.40 while 2.40 placed for AQUA. 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 DPLO is 8.61 while that of AQUA is just 6.29. This means that analysts are more bullish on the forecast for AQUA stock.

Conclusion

The stock of Evoqua Water Technologies Corp. defeats that of Diplomat Pharmacy, Inc. when the two are compared, with AQUA taking 3 out of the total factors that were been considered. AQUA 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, AQUA is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AQUA is better on when it is viewed on short interest.

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