Stryker Corporation (NYSE:SYK) and Corindus Vascular Robotics, Inc. (NYSE:CVRS) are the two most active stocks in the Medical Appliances & Equipment 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
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Stryker Corporation (SYK) has an EBITDA margin of 21.4%. (CVRS). This suggests that SYK underlying business is more profitable. SYK’s ROI is 11.50% while CVRS has a ROI of -406.00%. The interpretation is that SYK’s business generates a higher return on investment than CVRS’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SYK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.95. Comparatively, CVRS’s free cash flow per share was -0.05. On a percent-of-sales basis, SYK’s free cash flow was 3.14% while CVRS converted -0.33% of its revenues into cash flow. This means that, for a given level of sales, SYK 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. SYK has a current ratio of 2.40 compared to 5.10 for CVRS. This means that CVRS can more easily cover its most immediate liabilities over the next twelve months. SYK’s debt-to-equity ratio is 0.73 versus a D/E of 0.05 for CVRS. SYK is therefore the more solvent of the two companies, and has lower financial risk.
SYK trades at a forward P/E of 19.86, a P/B of 5.26, and a P/S of 4.41, compared to a forward a P/B of 8.41, and a P/S of 63.12 for CVRS. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. SYK is currently priced at a -7.21% to its one-year price target of $152.05. Comparatively, CVRS is -48% relative to its price target of $2.75. This suggests that CVRS 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 2.10 for SYK and 1.50 for CVRS, which implies that analysts are more bullish on the outlook for SYK.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. SYK has a short ratio of 4.94 compared to a short interest of 17.45 for CVRS. This implies that the market is currently less bearish on the outlook for SYK.
Stryker Corporation (NYSE:SYK) beats Corindus Vascular Robotics, Inc. (NYSE:CVRS) on a total of 7 of the 11 factors compared between the two stocks. SYK is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, SYK is the cheaper of the two stocks on book value and sales basis. Finally, SYK has better sentiment signals based on short interest.