MannKind Corporation (NASDAQ:MNKD) and NewLink Genetics Corporation (NASDAQ:NLNK) 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.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. MNKD’s ROI is -396.80% while NLNK has a ROI of -65.70%. The interpretation is that NLNK’s business generates a higher return on investment than MNKD’s.
The value of a stock is simply the present value of its future free cash flows. MNKD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.20. Comparatively, NLNK’s free cash flow per share was -0.37. On a percent-of-sales basis, MNKD’s free cash flow was -0.01% while NLNK converted -0.03% of its revenues into cash flow. This means that, for a given level of sales, MNKD is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. MNKD has a current ratio of 0.60 compared to 5.00 for NLNK. This means that NLNK can more easily cover its most immediate liabilities over the next twelve months.
MNKD trades at a forward P/S of 0.99, compared to a forward P/B of 2.22, and a P/S of 4.86 for NLNK. MNKD is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MNKD is currently priced at a -53.25% to its one-year price target of $4.00. Comparatively, NLNK is -47.36% relative to its price target of $14.80. This suggests that MNKD is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for MNKD and 2.20 for NLNK, which implies that analysts are more bullish on the outlook for MNKD.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MNKD has a beta of 3.09 and NLNK’s beta is 1.31. NLNK’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. MNKD has a short ratio of 9.21 compared to a short interest of 7.16 for NLNK. This implies that the market is currently less bearish on the outlook for NLNK.
NewLink Genetics Corporation (NASDAQ:NLNK) beats MannKind Corporation (NASDAQ:MNKD) on a total of 5 of the 10 factors compared between the two stocks. NLNK is more profitable and higher liquidity. Finally, NLNK has better sentiment signals based on short interest.