OPKO Health, Inc. (NASDAQ:OPK) shares are down more than -48.17% this year and recently decreased -1.89% or -$0.03 to settle at $1.56. Designer Brands Inc. (NYSE:DBI), on the other hand, is down -34.90% year to date as of 12/02/2019. It currently trades at $16.08 and has returned -2.19% during the past week.
OPKO Health, Inc. (NASDAQ:OPK) and Designer Brands Inc. (NYSE:DBI) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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 OPK to grow earnings at a 12.00% annual rate over the next 5 years. Comparatively, DBI is expected to grow at a 14.68% annual rate. All else equal, DBI’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 4.8% for Designer Brands Inc. (DBI). OPK’s ROI is -6.60% while DBI has a ROI of 3.00%. The interpretation is that DBI’s business generates a higher return on investment than OPK’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. OPK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.04. Comparatively, DBI’s free cash flow per share was +0.05. On a percent-of-sales basis, OPK’s free cash flow was -0% while DBI converted 0.11% of its revenues into cash flow. This means that, for a given level of sales, DBI is able to generate more free cash flow for investors.
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. OPK has a current ratio of 1.10 compared to 1.40 for DBI. This means that DBI can more easily cover its most immediate liabilities over the next twelve months. OPK’s debt-to-equity ratio is 0.17 versus a D/E of 0.32 for DBI. DBI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
OPK trades at a P/B of 0.56, and a P/S of 1.17, compared to a forward P/E of 7.34, a P/B of 1.62, and a P/S of 0.35 for DBI. 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. OPK is currently priced at a -62.23% to its one-year price target of 4.13. Comparatively, DBI is -32.61% relative to its price target of 23.86. This suggests that OPK 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. OPK has a beta of 2.21 and DBI’s beta is 1.15. DBI’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. OPK has a short ratio of 14.64 compared to a short interest of 8.05 for DBI. This implies that the market is currently less bearish on the outlook for DBI.
Designer Brands Inc. (NYSE:DBI) beats OPKO Health, Inc. (NASDAQ:OPK) on a total of 9 of the 14 factors compared between the two stocks. DBI 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, DBI has better sentiment signals based on short interest.