Valhi (NYSE:VHI) versus Innospec (NASDAQ:IOSP) Critical Survey

Valhi (NYSE:VHI) and Innospec (NASDAQ:IOSP) are both small-cap basic materials companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, risk, earnings, analyst recommendations, dividends, institutional ownership and profitability.

Analyst Ratings

This is a breakdown of current ratings and target prices for Valhi and Innospec, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Valhi	1	1	0	0	1.50
Innospec	1	1	0	1	2.33

Valhi presently has a consensus price target of $12.00, suggesting a potential downside of 18.49%. Given Valhi’s higher possible upside, analysts clearly believe Valhi is more favorable than Innospec.

Volatility & Risk

Valhi has a beta of 1.17, indicating that its stock price is 17% more volatile than the S&P 500. Comparatively, Innospec has a beta of 1.04, indicating that its stock price is 4% more volatile than the S&P 500.

Profitability

This table compares Valhi and Innospec’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Valhi	4.69%	7.02%	3.53%
Innospec	1.08%	10.89%	7.70%

Valuation and Earnings

This table compares Valhi and Innospec”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Valhi	$2.10 billion	0.20	$108.00 million	$3.43	4.29
Innospec	$1.85 billion	1.03	$35.60 million	$0.78	97.83

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

Dividends

Valhi pays an annual dividend of $0.32 per share and has a dividend yield of 2.2%. Innospec pays an annual dividend of $1.68 per share and has a dividend yield of 2.2%. Valhi pays out 9.3% of its earnings in the form of a dividend. Innospec pays out 215.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Innospec has raised its dividend for 11 consecutive years. Innospec is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

3.8% of Valhi shares are held by institutional investors. Comparatively, 96.6% of Innospec shares are held by institutional investors. 0.2% of Valhi shares are held by company insiders. Comparatively, 1.3% of Innospec shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Summary

Innospec beats Valhi on 10 of the 17 factors compared between the two stocks.

About Valhi

Valhi, Inc. engages in the chemicals, component products, and real estate management and development businesses in Europe, North America, the Asia Pacific, and internationally. The company’s Chemicals segment produces and markets titanium dioxide pigments (TiO2), which are white inorganic pigments used in various applications by paint, plastics, decorative laminate, and paper manufacturers. It offers TiO2 under the KRONOS name through agents and distributors. The company’s Component Products segment manufactures mechanical and electrical cabinet locks, and other locking mechanisms for use in ignition systems, mailboxes, file cabinets, desk drawers, tool storage cabinets, vending and cash containment machines, integrated inventory and access control secured narcotics boxes, medical cabinetry security, electronic circuit panels, storage compartments, and gas station security applications. It also provides stainless steel exhaust components, gauges, throttle controls, wake enhancement systems, trim tabs, and related hardware and accessories primarily for performance and ski/wakeboard boats. The company’s Real Estate Management and Development segment offers utility services to industrial and municipal customers; owns real properties; and develops land holdings for commercial, industrial, and residential purposes. It also holds marketable securities and other investments. The company was incorporated in 1932 and is based in Dallas, Texas. Valhi, Inc. is a subsidiary of Dixie Rice Agricultural L.L.C.

About Innospec

Innospec Inc. develops, manufactures, blends, markets, and supplies specialty chemicals in the United States, rest of North America, the United Kingdom, rest of Europe, and internationally. The company's Fuel Specialties segment offers a range of specialty chemical products that are used as additives in additives in diesel, jet, marine, fuel oil and other fuels. This segment's products are used in the operation of commercial trucking, marine and aviation engines, power station generators, heating oil, and other industrial machinery applications. Its Performance Chemicals segment provides technology-based solutions for its customers' processes or products that focuses on the personal care, home care, agrochemical, construction, mining, and other industrial markets. The company's Oilfield Services segment develops and markets chemical solutions for drilling, completion, fracturing, stimulation, and completion operations; and products for oil and gas production. It sells its products primarily to oil and gas exploration and production companies, oil refineries, fuel manufacturers and users, personal care and home care companies, formulators of agrochemical, and other chemical and industrial companies. The company was formerly known as Octel Corp. and changed its name to Innospec Inc. in January 2006. Innospec Inc. was founded in 1938 and is headquartered in Englewood, Colorado.