Juno Therapeutics, Inc. (NASDAQ:JUNO) and Pacific Biosciences of California, Inc. (NASDAQ:PACB) 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.
Profitability and Returns
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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. JUNO’s ROI is -23.00% while PACB has a ROI of -70.70%. The interpretation is that JUNO’s business generates a higher return on investment than PACB’s.
Cash is king when it comes to investing. JUNO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.57. Comparatively, PACB’s free cash flow per share was -0.17. On a percent-of-sales basis, JUNO’s free cash flow was -0.08% while PACB converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, PACB is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. JUNO has a current ratio of 5.10 compared to 3.70 for PACB. This means that JUNO can more easily cover its most immediate liabilities over the next twelve months. JUNO’s debt-to-equity ratio is 0.03 versus a D/E of 0.11 for PACB. PACB is therefore the more solvent of the two companies, and has lower financial risk.
JUNO trades at a forward P/B of 4.67, and a P/S of 54.92, compared to a forward P/B of 4.68, and a P/S of 6.68 for PACB. JUNO is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. JUNO is currently priced at a 17.23% to its one-year price target of $35.75. Comparatively, PACB is -6.39% relative to its price target of $5.95. This suggests that PACB 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 1.90 for JUNO and 1.80 for PACB, which implies that analysts are more bullish on the outlook for JUNO.
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. PACB’s beta is 2.09.
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. JUNO has a short ratio of 6.29 compared to a short interest of 12.61 for PACB. This implies that the market is currently less bearish on the outlook for JUNO.
Pacific Biosciences of California, Inc. (NASDAQ:PACB) beats Juno Therapeutics, Inc. (NASDAQ:JUNO) on a total of 5 of the 11 factors compared between the two stocks. PACB generates a higher return on investment and has a higher cash conversion rate. PACB is more undervalued relative to its price target. Finally, GILD has better sentiment signals based on short interest.