LyondellBasell Industries N.V. (NYSE:LYB) shares are up more than 11.41% this year and recently increased 0.12% or $0.11 to settle at $92.65. Neurocrine Biosciences, Inc. (NASDAQ:NBIX), on the other hand, is up 63.51% year to date as of 12/02/2019. It currently trades at $116.76 and has returned 2.12% during the past week.
LyondellBasell Industries N.V. (NYSE:LYB) and Neurocrine Biosciences, Inc. (NASDAQ:NBIX) are the two most active stocks in the Specialty Chemicals industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect LYB to grow earnings at a 2.95% annual rate over the next 5 years.
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 28.37% for Neurocrine Biosciences, Inc. (NBIX). LYB’s ROI is 23.50% while NBIX has a ROI of 4.20%. The interpretation is that LYB’s business generates a higher return on investment than NBIX’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. LYB’s free cash flow (“FCF”) per share for the trailing twelve months was +2.32. Comparatively, NBIX’s free cash flow per share was +0.98. On a percent-of-sales basis, LYB’s free cash flow was 1.98% while NBIX converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, LYB is able to generate more free cash flow for investors.
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. LYB has a current ratio of 1.30 compared to 7.10 for NBIX. This means that NBIX can more easily cover its most immediate liabilities over the next twelve months. LYB’s debt-to-equity ratio is 1.53 versus a D/E of 0.00 for NBIX. LYB is therefore the more solvent of the two companies, and has lower financial risk.Valuation
LYB trades at a forward P/E of 7.96, a P/B of 3.96, and a P/S of 0.89, compared to a forward P/E of 32.88, a P/B of 18.68, and a P/S of 16.07 for NBIX. LYB 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
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. LYB is currently priced at a -8.66% to its one-year price target of 101.43. Comparatively, NBIX is 1.97% relative to its price target of 114.50. This suggests that LYB 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. LYB has a beta of 1.41 and NBIX’s beta is 1.25. NBIX’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. LYB has a short ratio of 2.33 compared to a short interest of 4.77 for NBIX. This implies that the market is currently less bearish on the outlook for LYB.
LyondellBasell Industries N.V. (NYSE:LYB) beats Neurocrine Biosciences, Inc. (NASDAQ:NBIX) on a total of 9 of the 14 factors compared between the two stocks. LYB is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, LYB is the cheaper of the two stocks on an earnings, book value and sales basis, LYB is more undervalued relative to its price target. Finally, LYB has better sentiment signals based on short interest.