Exelixis, Inc. (NASDAQ:EXEL) shares are up more than 2.64% this year and recently increased 2.12% or $0.42 to settle at $20.19. Ferro Corporation (NYSE:FOE), on the other hand, is down -23.79% year to date as of 08/13/2019. It currently trades at $11.95 and has returned -2.53% during the past week.
Exelixis, Inc. (NASDAQ:EXEL) and Ferro Corporation (NYSE:FOE) 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.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect EXEL to grow earnings at a 46.00% annual rate over the next 5 years. Comparatively, FOE is expected to grow at a 5.88% annual rate. All else equal, EXEL’s higher growth rate would imply a greater potential for capital appreciation.
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., compared to an EBITDA margin of 10.36% for Ferro Corporation (FOE). EXEL’s ROI is 52.60% while FOE has a ROI of 11.50%. The interpretation is that EXEL’s business generates a higher return on investment than FOE’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. EXEL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.41. Comparatively, FOE’s free cash flow per share was -0.31. On a percent-of-sales basis, EXEL’s free cash flow was 0.01% while FOE converted -1.58% of its revenues into cash flow. This means that, for a given level of sales, EXEL is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. EXEL has a current ratio of 8.60 compared to 2.60 for FOE. This means that EXEL can more easily cover its most immediate liabilities over the next twelve months. EXEL’s debt-to-equity ratio is 0.00 versus a D/E of 2.31 for FOE. FOE is therefore the more solvent of the two companies, and has lower financial risk.Valuation
EXEL trades at a forward P/E of 17.44, a P/B of 4.10, and a P/S of 6.84, compared to a forward P/E of 8.03, a P/B of 2.60, and a P/S of 0.66 for FOE. EXEL 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. EXEL is currently priced at a -32.7% to its one-year price target of 30.00. Comparatively, FOE is -37.11% relative to its price target of 19.00. This suggests that FOE 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. EXEL has a beta of 2.00 and FOE’s beta is 1.94. FOE’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. EXEL has a short ratio of 5.88 compared to a short interest of 6.26 for FOE. This implies that the market is currently less bearish on the outlook for EXEL.
Exelixis, Inc. (NASDAQ:EXEL) beats Ferro Corporation (NYSE:FOE) on a total of 9 of the 14 factors compared between the two stocks. EXEL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, EXEL has better sentiment signals based on short interest.