Earnings

Which Market Offer More Value? – Beacon Roofing Supply, Inc. (BECN), Achaogen, Inc. (AKAO)

The shares of Beacon Roofing Supply, Inc. have decreased by more than -44.75% this year alone. The shares recently went down by -4.73% or -$1.75 and now trades at $35.23. The shares of Achaogen, Inc. (NASDAQ:AKAO), has slumped by -45.81% year to date as of 08/13/2018. The shares currently trade at $5.82 and have been able to report a change of -17.45% over the past one week.

The stock of Beacon Roofing Supply, Inc. and Achaogen, Inc. were two of the most active stocks on Monday. 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. BECN has an EBITDA margin of 6.03%, this implies that the underlying business of BECN is more profitable. The ROI of BECN is 6.00% while that of AKAO is -82.00%. These figures suggest that BECN ventures generate a higher ROI than that of AKAO.

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, BECN’s free cash flow per share is a negative -1.26, while that of AKAO is also a negative -0.41.

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 BECN is 2.10 and that of AKAO is 3.80. This implies that it is easier for BECN to cover its immediate obligations over the next 12 months than AKAO. The debt ratio of BECN is 1.64 compared to 0.59 for AKAO. BECN can be able to settle its long-term debts and thus is a lower financial risk than AKAO.

Valuation

BECN currently trades at a forward P/E of 8.70, a P/B of 1.30, and a P/S of 0.42 while AKAO trades at a P/B of 4.44, and a P/S of 37.90. This means that looking at the earnings, book values and sales basis, BECN 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 BECN is currently at a -32.77% to its one-year price target of 52.40. Looking at its rival pricing, AKAO is at a -63.63% relative to its price target of 16.00.




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), BECN is given a 2.00 while 2.00 placed for AKAO. 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 BECN is 4.75 while that of AKAO is just 11.46. This means that analysts are more bullish on the forecast for BECN stock.

Conclusion

The stock of Achaogen, Inc. defeats that of Beacon Roofing Supply, Inc. when the two are compared, with AKAO taking 6 out of the total factors that were been considered. AKAO 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, AKAO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AKAO is better on when it is viewed on short interest.

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