Critical Comparison: Alder BioPharmaceuticals, Inc. (ALDR) vs. VeriSign, Inc. (VRSN)

Alder BioPharmaceuticals, Inc. (NASDAQ:ALDR) shares are down more than -13.46% this year and recently decreased -4.62% or -$0.43 to settle at $8.87. VeriSign, Inc. (NASDAQ:VRSN), on the other hand, is up 35.07% year to date as of 08/05/2019. It currently trades at $200.30 and has returned -7.07% during the past week.

Alder BioPharmaceuticals, Inc. (NASDAQ:ALDR) and VeriSign, Inc. (NASDAQ:VRSN) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ALDR to grow earnings at a 23.46% annual rate over the next 5 years. Comparatively, VRSN is expected to grow at a 8.00% annual rate. All else equal, ALDR’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 75.99% for VeriSign, Inc. (VRSN).

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. ALDR’s free cash flow (“FCF”) per share for the trailing twelve months was -1.02. Comparatively, VRSN’s free cash flow per share was -.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. ALDR has a current ratio of 8.30 compared to 1.40 for VRSN. This means that ALDR can more easily cover its most immediate liabilities over the next twelve months.

Valuation

ALDR trades at a P/B of 4.13, compared to a forward P/E of 35.38, and a P/S of 19.65 for VRSN. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. ALDR is currently priced at a -57.03% to its one-year price target of 20.64. Comparatively, VRSN is -16.66% relative to its price target of 240.33. This suggests that ALDR is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. ALDR has a beta of 2.54 and VRSN’s beta is 1.06. VRSN’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. ALDR has a short ratio of 16.40 compared to a short interest of 2.13 for VRSN. This implies that the market is currently less bearish on the outlook for VRSN.

Summary

VeriSign, Inc. (NASDAQ:VRSN) beats Alder BioPharmaceuticals, Inc. (NASDAQ:ALDR) on a total of 7 of the 13 factors compared between the two stocks. VRSN is growing fastly, generates a higher return on investment, has higher cash flow per share and has lower financial risk. Finally, VRSN has better sentiment signals based on short interest.