Merck & Co., Inc. (NYSE:MRK) shares are up more than 11.01% this year and recently decreased -0.05% or -$0.04 to settle at $84.82. Great Panther Mining Limited (NYSE:GPL), on the other hand, is up 11.01% year to date as of 07/10/2019. It currently trades at $0.79 and has returned -8.19% during the past week.
Merck & Co., Inc. (NYSE:MRK) and Great Panther Mining Limited (NYSE:GPL) are the two most active stocks based on recent 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect MRK to grow earnings at a 9.84% annual rate over the next 5 years.
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. Merck & Co., Inc. (MRK) has an EBITDA margin of 34.14%. This suggests that MRK underlying business is more profitable MRK’s ROI is 11.70% while GPL has a ROI of -16.40%. The interpretation is that MRK’s business generates a higher return on investment than GPL’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. MRK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, GPL’s free cash flow per share was -0.09. On a percent-of-sales basis, MRK’s free cash flow was -1.58% while GPL converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, GPL is able to generate more free cash flow for investors.
Liquidity and leverage ratios are important because they reveal the financial health of a company. MRK has a current ratio of 1.40 compared to 1.00 for GPL. This means that MRK can more easily cover its most immediate liabilities over the next twelve months. MRK’s debt-to-equity ratio is 0.94 versus a D/E of 0.45 for GPL. MRK is therefore the more solvent of the two companies, and has lower financial risk.Valuation
MRK trades at a forward P/E of 15.93, a P/B of 7.96, and a P/S of 5.07, compared to a forward P/E of 4.08, a P/B of 1.01, and a P/S of 3.74 for GPL. MRK is the expensive 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. MRK is currently priced at a -6.58% to its one-year price target of 90.79. Comparatively, GPL is -62.91% relative to its price target of 2.13. This suggests that GPL is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MRK has a beta of 0.59 and GPL’s beta is 0.62. MRK’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MRK has a short ratio of 1.57 compared to a short interest of 2.77 for GPL. This implies that the market is currently less bearish on the outlook for MRK.
Great Panther Mining Limited (NYSE:GPL) beats Merck & Co., Inc. (NYSE:MRK) on a total of 7 of the 14 factors compared between the two stocks. GPL is growing fastly, has a higher cash conversion rate and has lower financial risk. In terms of valuation, GPL is the cheaper of the two stocks on an earnings, book value and sales basis, GPL is more undervalued relative to its price target. Finally, CTRP has better sentiment signals based on short interest.