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.
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.
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.
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.
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.