Comparing Canopy Growth Corporation (CGC) and MEDNAX, Inc. (MD)

Canopy Growth Corporation (NYSE:CGC) shares are up more than 2.08% this year and recently increased 0.73% or $0.2 to settle at $27.43. MEDNAX, Inc. (NYSE:MD), on the other hand, is down -30.27% year to date as of 09/10/2019. It currently trades at $23.01 and has returned 11.21% during the past week.

Canopy Growth Corporation (NYSE:CGC) and MEDNAX, Inc. (NYSE:MD) are the two most active stocks in the Drug Manufacturers – Other industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, MD is expected to grow at a 6.04% annual rate. All else equal, MD’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 9.1% for MEDNAX, Inc. (MD).

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. CGC’s free cash flow (“FCF”) per share for the trailing twelve months was -1.07. Comparatively, MD’s free cash flow per share was +1.31. On a percent-of-sales basis, CGC’s free cash flow was -0.18% while MD converted 3.02% of its revenues into cash flow. This means that, for a given level of sales, MD is able to generate more free cash flow for investors.

Valuation

CGC trades at a P/B of 5.19, compared to a forward P/E of 6.45, a P/B of 0.70, and a P/S of 0.57 for MD. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CGC has a short ratio of 7.28 compared to a short interest of 7.07 for MD. This implies that the market is currently less bearish on the outlook for MD.

Summary

MEDNAX, Inc. (NYSE:MD) beats Canopy Growth Corporation (NYSE:CGC) on a total of 8 of the 13 factors compared between the two stocks. MD has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, MD has better sentiment signals based on short interest.