Earnings

Comparing Synergy Pharmaceuticals Inc. (SGYP) and Sucampo Pharmaceuticals, Inc. (SCMP)

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) shares are down more than -67.00% this year and recently increased 5.24% or $0.1 to settle at $2.01. Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP), on the other hand, is up 21.77% year to date as of 12/13/2017. It currently trades at $16.50 and has returned 10.37% during the past week.

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) and Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) are the two most active stocks in the Drug Manufacturers – Other 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.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, SCMP is expected to grow at a 3.00% annual rate. All else equal, SCMP’s higher growth rate would imply a greater potential for capital appreciation.



Cash Flow 

The amount of free cash flow available to investors is ultimately what determines the value of a stock. SGYP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, SCMP’s free cash flow per share was -0.08.

Liquidity and Financial Risk




Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SGYP has a current ratio of 4.30 compared to 5.10 for SCMP. This means that SCMP can more easily cover its most immediate liabilities over the next twelve months.

Valuation

SGYP trades at a P/S of 68.82, compared to a forward P/E of 13.22, a P/B of 19.19, and a P/S of 2.94 for SCMP. 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. SGYP is currently priced at a -73.41% to its one-year price target of 7.56. Comparatively, SCMP is 12.78% relative to its price target of 14.63. This suggests that SGYP 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 2.00 for SGYP and 2.40 for SCMP, which implies that analysts are more bullish on the outlook for SCMP.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SGYP has a beta of 1.27 and SCMP’s beta is 1.38. SGYP’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SGYP has a short ratio of 11.75 compared to a short interest of 4.65 for SCMP. This implies that the market is currently less bearish on the outlook for SCMP.

Summary

Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) beats Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) on a total of 7 of the 13 factors compared between the two stocks. SCMP , generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. Finally, SCMP has better sentiment signals based on short interest.

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