The chemical industry is well-poised for robust growth in the long term, thanks to the strong demand for specialty chemicals and the integration of digital technologies to drive value chain improvements and sustainability; and develop innovative products. Chemical producers ChromaDex (CDXC) and Origin Materials (ORGN) should benefit from the industry tailwinds. But which of these chemical stocks is a better buy under $5? Read more to find out….
In this piece, I evaluated two chemical stocks, ChromaDex Corporation (CDXC) and Origin Materials, Inc. (ORGN), to determine which is a better investment. Based on the fundamental comparison of these stocks, I believe CDXC is the better buy for the reasons explained throughout this article.
Despite macroeconomic challenges, such as volatile energy prices, high material inflation, supply chain disruptions, and the fracturing of trading patterns signaling economic uncertainty, the chemical industry is well-positioned to overcome potential headwinds and witness significant long-term growth, driven by the sustained demand for specialty chemicals and digital technologies revolutionizing the space.
Global chemical companies are emphasizing the long-term viability of product portfolios by integrating innovation and sustainability. The implementation of emerging digital technologies is evolving the decision-making landscape of chemical producers. Amid a dynamic and pressurized global environment, companies are exploring new ways to maintain a competitive edge.
Chemical companies are increasingly investing in new digital solutions and applying them in areas including sales and operations planning, demand planning, supply, and response. Recent technological advancements like in-memory processing power along with almost unlimited data storage capabilities at low cost, provide unparalleled connectivity and speed in processing and analyzing huge amounts of data.
Furthermore, advanced technologies such as the Internet of Things (IoT), machine learning, and blockchain fuel the digitalization movement within the chemical industry.
The Inflation Reduction Act (IRA), which was signed into law by President Joe Biden in August 2022, opens numerous opportunities for the chemical industry. The IRA will result in the installation of 950 million solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants by 2030. Also, chemical companies could promote their products as a solution to the Act's aims to reduce emissions by 40% below 2005 levels.
The U.S. chemical industry is responsible for more than 25% of the total GDP. The industry supports the production of almost all commercial and household goods, making it highly essential for economic growth. According to a report by ReportLinker, the global chemicals market is expected to reach $6.85 trillion by 2027, growing at a CAGR of 7.8%.
CDXC's stock has declined 18.6% in price over the past six months and 22.2% over the past year. In comparison, ORGN's stock has plunged 20.1% over the past six months and 36.9% over the past year.
Here are the reasons why we think CDXC could perform better in the near term:
Latest Developments
On February 22, CDXC announced the issuance of new U.S. Patent 11,584,770 with purity compositions of dihydronicotinamide riboside (NRH) and dihydronicotinic acid riboside (NARH), further solidifying the company as a leader in the nicotinamide adenine dinucleotide (NAD+) precursors space. The expansion of this patent family should bode well for the company.
On May 9, ORGN and Indorama Ventures Public Company Limited, the world's largest producer of virgin and recycled PET resins, entered a strategic partnership to accelerate the mass production of low-carbon bio-based materials. The companies share an interest in rapidly deploying ORGN's carbon-negative technology platform, which converts sustainable wood residues into useful materials.
This partnership is expected to boost ORGN's profitability and growth.
Recent Financial Results
CDXC's net sales increased 30.7% year-over-year to $22.56 million in the first quarter that ended March 31, 2023. Its gross profit was $13.52 million, up 28.4% from the same period in 2022. Cash inflows from operating activities were $2.78 million for the quarter. As of March 31, 2023, the company's cash and cash equivalents stood at $23.14 million, compared to $20.44 million as of December 31, 2022.
ORGN's revenue for the first quarter that ended March 31, 2023, was $1.70 million compared to zero in the prior-year period. The company's loss from operations widened 62.5% year-over-year to $12.28 million. In addition, its adjusted EBITDA loss came in at $9.70 million compared to a loss of $6.50 million in the previous year's quarter.
Expected Financial Performance
For the fiscal year 2023 (ending December 2023), analysts expect CDXC's revenue to increase 16.6% year-over-year to $83.98 million. The company's revenue for the fiscal year 2024 is expected to grow 16.6% from the prior year to $97.87 million. However, CDXC's EPS is expected to be negative for at least two fiscal years.
Analysts expect ORGN's revenue to increase 123.1% year-over-year for the fiscal year 2024 (ending December 2024). However, the company's loss per share is expected to widen by 153.6% in fiscal 2023 and 26.7% in fiscal 2024 to $0.53 and $0.67, respectively.
Profitability
CDXC's trailing-12-month revenue is 45.5 times what ORGN generates. Moreover, CDXC is more profitable, with a trailing-12-month gross profit margin of 20.43% compared to ORGN's 43.66%. Also, CDXC's trailing-12-month asset turnover of 1.45x is higher than ORGN's 0.00x.
Valuation
In terms of forward EV/Sales, CDXC is currently trading at 1.03x, 86.2% lower than ORGN, which is trading at 7.47x. CDXC's forward Price/Sales multiple of 1.25 is significantly lower than ORGN's 12.58. Likewise, CDXC's forward Price/Book of 5.60x compared to ORGN's 2.00x.
POWR Ratings
CDXC has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, ORGN has an overall rating of F, translating to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CDXC has a grade of A for Growth. The Growth grade is justified by its stable rise in financials over the past years. On the other hand, ORGN has a Growth grade of F, consistent with its disappointing financial performance.
In addition, CDXC has a grade of B for Value, in sync with its lower-than-industry valuation. CDXC's forward EV/Sales of 1.03x is 71.1% lower than the industry average of 3.56x. ORGN, on the other hand, has a grade of D for Value, consistent with its relatively higher valuation metrics. ORGN has a forward EV/Sales multiple of 7.47, 422.9% higher than the industry average of 1.43.
Of the 84 stocks in the Chemicals industry, CDXC is ranked #3, while ORGN is ranked #78.
Beyond what we've stated above, we have also rated both stocks for Stability, Momentum, Quality, and Sentiment. Click here to view CDXC Ratings. Get all ORGN ratings here.
The Winner
Despite lingering macroeconomic headwinds, the chemical industry is well-placed to witness considerable growth in the long run, driven by high demand for specialty chemicals and increased use of digital technology to optimize production, innovate product portfolios, and drive sustainability. Therefore, leading chemical companies CDXC and ORGN are expected to benefit significantly from the industry tailwinds.
However, ORGN's relatively weak financials, low profitability, elevated valuations, and bleak growth prospects make its competitor CDXC a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Chemicals industry here.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these "death trap" stocks are lurking in your portfolio:
ORGN shares were unchanged in premarket trading Thursday. Year-to-date, ORGN has declined -8.24%, versus a 9.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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