Karyopharm Therapeutics Inc. (NASDAQ:KPTI) shares are up more than 82.18% this year and recently decreased -2.57% or -$0.45 to settle at $17.07. Motorola Solutions, Inc. (NYSE:MSI), on the other hand, is up 43.46% year to date as of 12/02/2019. It currently trades at $165.04 and has returned -0.49% during the past week.
Karyopharm Therapeutics Inc. (NASDAQ:KPTI) and Motorola Solutions, Inc. (NYSE:MSI) are the two most active stocks in the Biotechnology 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, MSI is expected to grow at a 10.39% annual rate. All else equal, MSI’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. EBITDA margin of 19.87% for Motorola Solutions, Inc. (MSI). KPTI’s ROI is -62.90% while MSI has a ROI of 25.90%. The interpretation is that MSI’s business generates a higher return on investment than KPTI’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. KPTI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.58. Comparatively, MSI’s free cash flow per share was +2.11. On a percent-of-sales basis, KPTI’s free cash flow was -0.12% while MSI converted 4.92% of its revenues into cash flow. This means that, for a given level of sales, MSI is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. KPTI has a current ratio of 7.20 compared to 1.10 for MSI. This means that KPTI can more easily cover its most immediate liabilities over the next twelve months.Valuation
KPTI trades at a P/B of 17.78, and a P/S of 45.06, compared to a forward P/E of 19.21, and a P/S of 3.64 for MSI. KPTI is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. KPTI is currently priced at a -26.58% to its one-year price target of 23.25. Comparatively, MSI is -8.49% relative to its price target of 180.36. This suggests that KPTI is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. KPTI has a beta of 2.55 and MSI’s beta is 0.57. MSI’s shares are therefore the less volatile of the two stocks.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. KPTI has a short ratio of 6.85 compared to a short interest of 2.73 for MSI. This implies that the market is currently less bearish on the outlook for MSI.
Motorola Solutions, Inc. (NYSE:MSI) beats Karyopharm Therapeutics Inc. (NASDAQ:KPTI) on a total of 10 of the 14 factors compared between the two stocks. MSI higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, MSI is the cheaper of the two stocks on book value and sales basis, Finally, MSI has better sentiment signals based on short interest.