Global

Dissecting the Numbers for Senseonics Holdings, Inc. (SENS) and Tronox Limited (TROX)

Senseonics Holdings, Inc. (NYSE:SENS) shares are up more than 69.55% this year and recently decreased -2.38% or -$0.11 to settle at $4.51. Tronox Limited (NYSE:TROX), on the other hand, is down -29.55% year to date as of 09/11/2018. It currently trades at $14.45 and has returned -7.07% during the past week.

Senseonics Holdings, Inc. (NYSE:SENS) and Tronox Limited (NYSE:TROX) are the two most active stocks in the Medical Appliances & Equipment industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, TROX is expected to grow at a 10.00% annual rate. All else equal, TROX’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 31.83% for Tronox Limited (TROX). SENS’s ROI is -177.60% while TROX has a ROI of -26.70%. The interpretation is that TROX’s business generates a higher return on investment than SENS’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. SENS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, TROX’s free cash flow per share was +0.02. On a percent-of-sales basis, SENS’s free cash flow was -0.39% while TROX converted 0.14% of its revenues into cash flow. This means that, for a given level of sales, TROX is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SENS has a current ratio of 8.30 compared to 7.80 for TROX. This means that SENS can more easily cover its most immediate liabilities over the next twelve months. SENS’s debt-to-equity ratio is 0.51 versus a D/E of 4.37 for TROX. TROX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SENS trades at a P/B of 5.93, and a P/S of 65.95, compared to a forward P/E of 7.21, a P/B of 2.45, and a P/S of 1.00 for TROX. SENS is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SENS is currently priced at a -23.04% to its one-year price target of 5.86. Comparatively, TROX is -41.19% relative to its price target of 24.57. This suggests that TROX is the better investment over the next year.

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. SENS has a short ratio of 5.30 compared to a short interest of 3.69 for TROX. This implies that the market is currently less bearish on the outlook for TROX.

Summary




Tronox Limited (NYSE:TROX) beats Senseonics Holdings, Inc. (NYSE:SENS) on a total of 9 of the 14 factors compared between the two stocks. TROX higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, TROX is the cheaper of the two stocks on book value and sales basis, TROX is more undervalued relative to its price target. Finally, TROX has better sentiment signals based on short interest.

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