Earnings

Dissecting the Numbers for Roka Bioscience, Inc. (ROKA) and NeoGenomics, Inc. (NEO)

Roka Bioscience, Inc. (NASDAQ:ROKA) shares are down more than -58.02% this year and recently increased 8.54% or $0.14 to settle at $1.78. NeoGenomics, Inc. (NASDAQ:NEO), on the other hand, is up 5.83% year to date as of 10/18/2017. It currently trades at $9.07 and has returned -18.80% during the past week.

Roka Bioscience, Inc. (NASDAQ:ROKA) and NeoGenomics, Inc. (NASDAQ:NEO) are the two most active stocks in the Medical Laboratories & Research industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect ROKA to grow earnings at a 35.00% annual rate over the next 5 years. Comparatively, NEO is expected to grow at a 20.00% annual rate. All else equal, ROKA’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 11.26% for NeoGenomics, Inc. (NEO). ROKA’s ROI is -68.20% while NEO has a ROI of 1.60%. The interpretation is that NEO’s business generates a higher return on investment than ROKA’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. ROKA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.86. Comparatively, NEO’s free cash flow per share was +0.02. On a percent-of-sales basis, ROKA’s free cash flow was -0.06% while NEO converted 0% of its revenues into cash flow. This means that, for a given level of sales, NEO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. ROKA has a current ratio of 1.60 compared to 2.40 for NEO. This means that NEO can more easily cover its most immediate liabilities over the next twelve months. ROKA’s debt-to-equity ratio is 0.17 versus a D/E of 0.65 for NEO. NEO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ROKA trades at a P/B of 0.30, and a P/S of 1.27, compared to a forward P/E of 33.72, a P/B of 4.26, and a P/S of 3.40 for NEO. ROKA is the cheaper 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ROKA is currently priced at a -82.2% to its one-year price target of 10.00. Comparatively, NEO is -18.58% relative to its price target of 11.14. This suggests that ROKA is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for ROKA and 1.70 for NEO, which implies that analysts are more bullish on the outlook for ROKA.

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. ROKA has a short ratio of 0.15 compared to a short interest of 21.06 for NEO. This implies that the market is currently less bearish on the outlook for ROKA.

Summary

Roka Bioscience, Inc. (NASDAQ:ROKA) beats NeoGenomics, Inc. (NASDAQ:NEO) on a total of 8 of the 14 factors compared between the two stocks. ROKA is growing fastly and has lower financial risk. In terms of valuation, ROKA is the cheaper of the two stocks on an earnings, book value and sales basis, ROKA is more undervalued relative to its price target. Finally, ROKA has better sentiment signals based on short interest.

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