Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) and Achaogen, Inc. (NASDAQ:AKAO) 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. CRBP’s ROI is -217.20% while AKAO has a ROI of -37.40%. The interpretation is that AKAO’s business generates a higher return on investment than CRBP’s.
The value of a stock is simply the present value of its future free cash flows. CRBP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, AKAO’s free cash flow per share was -0.56. On a percent-of-sales basis, CRBP’s free cash flow was -0.29% while AKAO converted -0.06% of its revenues into cash flow. This means that, for a given level of sales, AKAO is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CRBP has a current ratio of 6.40 compared to 8.40 for AKAO. This means that AKAO can more easily cover its most immediate liabilities over the next twelve months. CRBP’s debt-to-equity ratio is 0.00 versus a D/E of 0.20 for AKAO. AKAO is therefore the more solvent of the two companies, and has lower financial risk.
CRBP trades at a forward P/B of 10.27, and a P/S of 132.74, compared to a forward P/B of 3.94, and a P/S of 21.12 for AKAO. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CRBP is currently priced at a -65.39% to its one-year price target of $22.25. Comparatively, AKAO is -35.52% relative to its price target of $28.63. This suggests that CRBP 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 2.00 for CRBP and 1.70 for AKAO, which implies that analysts are more bullish on the outlook for CRBP.
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. AKAO’s beta is 1.64.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CRBP has a short ratio of 11.99 compared to a short interest of 8.89 for AKAO. This implies that the market is currently less bearish on the outlook for AKAO.
Achaogen, Inc. (NASDAQ:AKAO) beats Corbus Pharmaceuticals Holdings, Inc. (NASDAQ:CRBP) on a total of 7 of the 11 factors compared between the two stocks. AKAO has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, AKAO is the cheaper of the two stocks on book value and sales basis, Finally, AKAO has better sentiment signals based on short interest.