Earnings

Dissecting the Numbers for The Mosaic Company (MOS) and Arcadia Biosciences, Inc. (RKDA)

The Mosaic Company (NYSE:MOS) shares are down more than -23.35% this year and recently increased 0.45% or $0.1 to settle at $22.48. Arcadia Biosciences, Inc. (NASDAQ:RKDA), on the other hand, is down -75.43% year to date as of 11/15/2017. It currently trades at $0.23 and has returned -19.00% during the past week.

The Mosaic Company (NYSE:MOS) and Arcadia Biosciences, Inc. (NASDAQ:RKDA) are the two most active stocks in the Agricultural Chemicals industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

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 MOS to grow earnings at a 6.84% annual rate over the next 5 years. Comparatively, RKDA is expected to grow at a 14.96% annual rate. All else equal, RKDA’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. The Mosaic Company (MOS) has an EBITDA margin of 15.48%. This suggests that MOS underlying business is more profitable MOS’s ROI is 2.90% while RKDA has a ROI of -39.40%. The interpretation is that MOS’s business generates a higher return on investment than RKDA’s.

Cash Flow 




Earnings don’t always accurately reflect the amount of cash that a company brings in. MOS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.33. Comparatively, RKDA’s free cash flow per share was -0.06. On a percent-of-sales basis, MOS’s free cash flow was -1.62% while RKDA converted -0.08% of its revenues into cash flow. This means that, for a given level of sales, RKDA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. MOS has a current ratio of 1.80 compared to 6.80 for RKDA. This means that RKDA can more easily cover its most immediate liabilities over the next twelve months. MOS’s debt-to-equity ratio is 0.39 versus a D/E of 0.00 for RKDA. MOS is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MOS trades at a forward P/E of 19.98, a P/B of 0.78, and a P/S of 1.10, compared to a P/B of 0.90, and a P/S of 2.68 for RKDA. 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. MOS is currently priced at a -11.18% to its one-year price target of 25.31. Comparatively, RKDA is -77% relative to its price target of 1.00. This suggests that RKDA 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 2.80 for MOS and 3.00 for RKDA, which implies that analysts are more bullish on the outlook for RKDA.

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. MOS has a short ratio of 5.11 compared to a short interest of 0.80 for RKDA. This implies that the market is currently less bearish on the outlook for RKDA.

Summary

Arcadia Biosciences, Inc. (NASDAQ:RKDA) beats The Mosaic Company (NYSE:MOS) on a total of 9 of the 14 factors compared between the two stocks. RKDA is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. RKDA is more undervalued relative to its price target. Finally, RKDA has better sentiment signals based on short interest.

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