Flexion Therapeutics, Inc. (NASDAQ:FLXN) shares are up more than 22.66% this year and recently increased 3.46% or $0.78 to settle at $23.33. Pacira Pharmaceuticals, Inc. (NASDAQ:PCRX), on the other hand, is up 19.89% year to date as of 11/15/2017. It currently trades at $38.72 and has returned -5.55% during the past week.
Flexion Therapeutics, Inc. (NASDAQ:FLXN) and Pacira Pharmaceuticals, Inc. (NASDAQ:PCRX) are the two most active stocks in the Drugs – Generic 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, PCRX is expected to grow at a 10.40% annual rate. All else equal, PCRX’s higher growth rate would imply a greater potential for capital appreciation.
If there’s one thing investors care more about than earnings, it’s cash flow. FLXN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.75. Comparatively, PCRX’s free cash flow per share was -0.20.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. FLXN has a current ratio of 18.30 compared to 7.00 for PCRX. This means that FLXN can more easily cover its most immediate liabilities over the next twelve months. FLXN’s debt-to-equity ratio is 0.79 versus a D/E of 1.03 for PCRX. PCRX is therefore the more solvent of the two companies, and has lower financial risk.
FLXN trades at a P/B of 3.65, compared to a forward P/E of 47.34, a P/B of 5.92, and a P/S of 5.59 for PCRX. FLXN is the cheaper 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”. FLXN is currently priced at a -41.83% to its one-year price target of 40.11. Comparatively, PCRX is -25.44% relative to its price target of 51.93. This suggests that FLXN 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 1.70 for FLXN and 2.30 for PCRX, which implies that analysts are more bullish on the outlook for PCRX.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. FLXN has a beta of 1.04 and PCRX’s beta is 2.01. FLXN’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. FLXN has a short ratio of 4.30 compared to a short interest of 7.40 for PCRX. This implies that the market is currently less bearish on the outlook for FLXN.
Flexion Therapeutics, Inc. (NASDAQ:FLXN) beats Pacira Pharmaceuticals, Inc. (NASDAQ:PCRX) on a total of 10 of the 13 factors compared between the two stocks. FLXN generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, FLXN is the cheaper of the two stocks on an earnings, book value and sales basis, FLXN is more undervalued relative to its price target. Finally, FLXN has better sentiment signals based on short interest.