Earnings

Dissecting the Numbers for INC Research Holdings, Inc. (INCR) and Myriad Genetics, Inc. (MYGN)

INC Research Holdings, Inc. (NASDAQ:INCR) shares are down more than -24.81% this year and recently increased 0.64% or $0.25 to settle at $39.55. Myriad Genetics, Inc. (NASDAQ:MYGN), on the other hand, is up 102.40% year to date as of 12/08/2017. It currently trades at $33.74 and has returned -0.24% during the past week.

INC Research Holdings, Inc. (NASDAQ:INCR) and Myriad Genetics, Inc. (NASDAQ:MYGN) are the two most active stocks in the Research Services industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect INCR to grow earnings at a 16.89% annual rate over the next 5 years. Comparatively, MYGN is expected to grow at a 11.83% annual rate. All else equal, INCR’s higher growth rate would imply a greater potential for capital appreciation.



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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 21.53% for Myriad Genetics, Inc. (MYGN). INCR’s ROI is 16.70% while MYGN has a ROI of 3.20%. The interpretation is that INCR’s business generates a higher return on investment than MYGN’s.

Cash Flow 




Cash is king when it comes to investing. INCR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, MYGN’s free cash flow per share was +0.31. On a percent-of-sales basis, INCR’s free cash flow was -0.06% while MYGN converted 0% of its revenues into cash flow. This means that, for a given level of sales, MYGN 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. INCR has a current ratio of 1.30 compared to 2.30 for MYGN. This means that MYGN can more easily cover its most immediate liabilities over the next twelve months. INCR’s debt-to-equity ratio is 1.01 versus a D/E of 0.00 for MYGN. INCR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

INCR trades at a forward P/E of 15.99, a P/B of 1.14, and a P/S of 1.99, compared to a forward P/E of 27.72, a P/B of 2.66, and a P/S of 2.98 for MYGN. INCR 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

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. INCR is currently priced at a -22.45% to its one-year price target of 51.00. Comparatively, MYGN is 16.06% relative to its price target of 29.07. This suggests that INCR 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 2.20 for INCR and 2.90 for MYGN, which implies that analysts are more bullish on the outlook for MYGN.

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.INCR has a short ratio of 2.52 compared to a short interest of 14.50 for MYGN. This implies that the market is currently less bearish on the outlook for INCR.

Summary

INC Research Holdings, Inc. (NASDAQ:INCR) beats Myriad Genetics, Inc. (NASDAQ:MYGN) on a total of 9 of the 14 factors compared between the two stocks. INCR is growing fastly and generates a higher return on investment. In terms of valuation, INCR is the cheaper of the two stocks on an earnings, book value and sales basis, INCR is more undervalued relative to its price target. Finally, INCR has better sentiment signals based on short interest.

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