Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) and United Therapeutics Corporation (NASDAQ:UTHR) are the two most active stocks in the Drug Manufacturers – Other industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. IONS’s ROI is -7.70% while UTHR has a ROI of 38.40%. The interpretation is that UTHR’s business generates a higher return on investment than IONS’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. IONS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.04. Comparatively, UTHR’s free cash flow per share was +1.11. On a percent-of-sales basis, IONS’s free cash flow was -0% while UTHR converted 3.02% of its revenues into cash flow. This means that, for a given level of sales, UTHR 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. IONS has a current ratio of 5.00 compared to 1.90 for UTHR. This means that IONS can more easily cover its most immediate liabilities over the next twelve months. IONS’s debt-to-equity ratio is 2.80 versus a D/E of 0.14 for UTHR. IONS is therefore the more solvent of the two companies, and has lower financial risk.
IONS trades at a forward P/E of 770.00, a P/B of 33.19, and a P/S of 14.86, compared to a forward P/E of 11.58, a P/B of 3.09, and a P/S of 3.63 for UTHR. IONS is the expensive 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
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”. IONS is currently priced at a 2.14% to its one-year price target of $56.54. Comparatively, UTHR is -0.5% relative to its price target of $124.00. This suggests that UTHR 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 2.70 for IONS and 3.20 for UTHR, which implies that analysts are more bullish on the outlook for UTHR.
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. IONS has a beta of 3.13 and UTHR’s beta is 1.51. UTHR’s shares are therefore the less volatile of the two stocks.
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. IONS has a short ratio of 10.22 compared to a short interest of 12.67 for UTHR. This implies that the market is currently less bearish on the outlook for IONS.
United Therapeutics Corporation (NASDAQ:UTHR) beats Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) on a total of 9 of the 12 factors compared between the two stocks. UTHR higher liquidity, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, UTHR is the cheaper of the two stocks on an earnings, book value and sales basis, UTHR is more undervalued relative to its price target. Finally, ABBV has better sentiment signals based on short interest.