Exelixis, Inc. (NASDAQ:EXEL) shares are up more than 107.44% this year and recently increased 0.39% or $0.12 to settle at $30.93. Northwest Biotherapeutics, Inc. (NASDAQ:NWBO), on the other hand, is up 19.10% year to date as of 12/28/2017. It currently trades at $0.24 and has returned 4.64% during the past week.
Exelixis, Inc. (NASDAQ:EXEL) and Northwest Biotherapeutics, Inc. (NASDAQ:NWBO) are the two most active stocks in the Biotechnology 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect EXEL to grow earnings at a 46.00% annual rate over the next 5 years.
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. Exelixis, Inc. (EXEL) has an EBITDA margin of 41.27%. This suggests that EXEL underlying business is more profitable
If there’s one thing investors care more about than earnings, it’s cash flow. EXEL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.12. Comparatively, NWBO’s free cash flow per share was -0.02. On a percent-of-sales basis, EXEL’s free cash flow was 0.02% while NWBO converted -1.02% of its revenues into cash flow. This means that, for a given level of sales, EXEL is able to generate more free cash flow for investors.
EXEL trades at a forward P/E of 42.43, a P/B of 38.19, and a P/S of 21.06, compared to a P/S of 113.00 for NWBO. EXEL is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. EXEL is currently priced at a -6.67% to its one-year price target of 33.14. Comparatively, NWBO is -95.2% relative to its price target of 5.00. This suggests that NWBO 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 2.30 for EXEL and 2.00 for NWBO, which implies that analysts are more bullish on the outlook for EXEL.
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. EXEL has a short ratio of 5.67 compared to a short interest of 8.06 for NWBO. This implies that the market is currently less bearish on the outlook for EXEL.
Northwest Biotherapeutics, Inc. (NASDAQ:NWBO) beats Exelixis, Inc. (NASDAQ:EXEL) on a total of 7 of the 14 factors compared between the two stocks. NWBO is growing fastly and has lower financial risk. In terms of valuation, NWBO is the cheaper of the two stocks on an earnings and book value, NWBO is more undervalued relative to its price target. Finally, VCEL has better sentiment signals based on short interest.