KMG Chemicals (NYSE: KMG) and Ferro Corporation (NYSE:FOE) are both small-cap basic materials companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, valuation, earnings, profitability, risk, analyst recommendations and dividends.

Dividends

KMG Chemicals pays an annual dividend of $0.12 per share and has a dividend yield of 0.2%. Ferro Corporation does not pay a dividend. KMG Chemicals pays out 6.7% of its earnings in the form of a dividend.

Earnings and Valuation

This table compares KMG Chemicals and Ferro Corporation’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
KMG Chemicals $312.48 million 1.83 $51.47 million $1.80 26.77
Ferro Corporation $1.24 billion 1.29 $174.53 million $0.15 127.61

Ferro Corporation has higher revenue and earnings than KMG Chemicals. KMG Chemicals is trading at a lower price-to-earnings ratio than Ferro Corporation, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

KMG Chemicals has a beta of 0.58, suggesting that its share price is 42% less volatile than the S&P 500. Comparatively, Ferro Corporation has a beta of 2.02, suggesting that its share price is 102% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for KMG Chemicals and Ferro Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KMG Chemicals 0 0 1 0 3.00
Ferro Corporation 0 0 4 0 3.00

KMG Chemicals currently has a consensus target price of $37.00, suggesting a potential downside of 23.22%. Ferro Corporation has a consensus target price of $20.75, suggesting a potential upside of 8.41%. Given Ferro Corporation’s higher possible upside, analysts plainly believe Ferro Corporation is more favorable than KMG Chemicals.

Profitability

This table compares KMG Chemicals and Ferro Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KMG Chemicals 7.05% 15.66% 9.75%
Ferro Corporation 1.06% 35.05% 7.69%

Insider and Institutional Ownership

73.7% of KMG Chemicals shares are held by institutional investors. Comparatively, 96.6% of Ferro Corporation shares are held by institutional investors. 6.9% of KMG Chemicals shares are held by insiders. Comparatively, 2.0% of Ferro Corporation shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Ferro Corporation beats KMG Chemicals on 8 of the 15 factors compared between the two stocks.

About KMG Chemicals

KMG Chemicals, Inc. manufactures, formulates and globally distributes specialty chemicals. The Company operates businesses selling electronic chemicals, industrial wood treating chemicals, and industrial valve lubricants and sealants. The Company operates through two segments: Electronic chemicals and Other chemicals. The Company operates through its subsidiaries, KMG Electronic Chemicals, Inc. (KMG EC), KMG-Bernuth, Inc. (KMG Bernuth) and KMG Val-Tex, LLC (Val-Tex). The Company’s Electronic chemicals business sells high purity and ultra-purity wet process chemicals primarily to the semiconductor industry. The Company’s Other chemicals segment includes its industrial lubricants business and wood treating chemicals business. The Company’s products sulfuric, phosphoric, nitric and hydrofluoric acids, ammonium hydroxide, hydrogen peroxide, isopropyl alcohol, other specialty organic solvents and various blends of chemicals.

About Ferro Corporation

Ferro Corporation (Ferro) produces specialty materials that are sold to a range of manufacturers. The Company’s segments include Performance Coatings; Performance Colors and Glass, and Pigments, Powders and Oxides. Its Performance Coatings segment includes Tile Coating Systems and Porcelain Enamel. Its manufacturers make products for various end-use markets. The Company’s products fall into two general categories: functional coatings, which perform specific functions in the manufacturing processes and end products of its customers, and color solutions, which provide aesthetic and performance characteristics to its customers’ products. Its products are used in a range of product applications in markets, including appliances, automobiles, building and renovation, electronics, household furnishings, industrial products and packaging.

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