Endo International plc (NASDAQ:ENDP) shares are down more than -42.05% this year and recently increased 0.95% or $0.04 to settle at $4.23. Chubb Limited (NYSE:CB), on the other hand, is up 18.38% year to date as of 11/07/2019. It currently trades at $152.92 and has returned 0.33% during the past week.
Endo International plc (NASDAQ:ENDP) and Chubb Limited (NYSE:CB) are the two most active stocks in the Drug Manufacturers – Other industry based on today’s 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ENDP to grow earnings at a -14.63% annual rate over the next 5 years. Comparatively, CB is expected to grow at a 5.70% annual rate. All else equal, CB’s higher growth rate would imply a greater potential for capital appreciation.
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 16.88% for Chubb Limited (CB). ENDP’s ROI is -5.70% while CB has a ROI of 6.50%. The interpretation is that CB’s business generates a higher return on investment than ENDP’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. ENDP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.74. Comparatively, CB’s free cash flow per share was -. On a percent-of-sales basis, ENDP’s free cash flow was 5.69% while CB converted 0% of its revenues into cash flow. This means that, for a given level of sales, ENDP is able to generate more free cash flow for investors.
ENDP trades at a forward P/E of 1.85, and a P/S of 0.31, compared to a forward P/E of 13.74, a P/B of 1.27, and a P/S of 2.13 for CB. ENDP is the cheaper 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ENDP is currently priced at a -19.89% to its one-year price target of 5.28. Comparatively, CB is -6.08% relative to its price target of 162.82. This suggests that ENDP is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. ENDP has a beta of 1.42 and CB’s beta is 0.69. CB’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. ENDP has a short ratio of 3.96 compared to a short interest of 2.97 for CB. This implies that the market is currently less bearish on the outlook for CB.
Endo International plc (NASDAQ:ENDP) beats Chubb Limited (NYSE:CB) on a total of 9 of the 14 factors compared between the two stocks. ENDP is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, ENDP is the cheaper of the two stocks on an earnings, book value and sales basis, ENDP is more undervalued relative to its price target.