CenterPoint Energy, Inc. (NYSE:CNP) shares are down more than -13.60% this year and recently decreased -0.69% or -$0.17 to settle at $24.39. Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX), on the other hand, is up 141.67% year to date as of 12/02/2019. It currently trades at $4.64 and has returned 4.27% during the past week.
CenterPoint Energy, Inc. (NYSE:CNP) and Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) are the two most active stocks in the Gas Utilities 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect CNP to grow earnings at a 3.63% annual rate over the next 5 years.
Growth doesn’t mean much if it comes at the cost of weak profitability. 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 14.51% for Catalyst Pharmaceuticals, Inc. (CPRX). CNP’s ROI is 4.30% while CPRX has a ROI of -69.50%. The interpretation is that CNP’s business generates a higher return on investment than CPRX’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. CNP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.65. Comparatively, CPRX’s free cash flow per share was +0.15. On a percent-of-sales basis, CNP’s free cash flow was -3.08% while CPRX converted 3.09% of its revenues into cash flow. This means that, for a given level of sales, CPRX is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. CNP has a current ratio of 1.00 compared to 5.00 for CPRX. This means that CPRX can more easily cover its most immediate liabilities over the next twelve months. CNP’s debt-to-equity ratio is 2.38 versus a D/E of 0.00 for CPRX. CNP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CNP trades at a forward P/E of 14.55, a P/B of 1.85, and a P/S of 1.02, compared to a forward P/E of 9.59, a P/B of 6.11, and a P/S of 6.63 for CPRX. 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. CNP is currently priced at a -15.4% to its one-year price target of 28.83. Comparatively, CPRX is -48.44% relative to its price target of 9.00. This suggests that CPRX 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. CNP has a beta of 0.41 and CPRX’s beta is 2.36. CNP’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. CNP has a short ratio of 2.34 compared to a short interest of 3.95 for CPRX. This implies that the market is currently less bearish on the outlook for CNP.
Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) beats CenterPoint Energy, Inc. (NYSE:CNP) on a total of 8 of the 14 factors compared between the two stocks. CPRX is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. CPRX is more undervalued relative to its price target.