NuVasive, Inc. (NASDAQ:NUVA) shares are down more than -20.43% this year and recently decreased -0.17% or -$0.08 to settle at $46.54. Viveve Medical, Inc. (NASDAQ:VIVE), on the other hand, is down -12.07% year to date as of 02/13/2018. It currently trades at $4.37 and has returned 9.52% during the past week.
NuVasive, Inc. (NASDAQ:NUVA) and Viveve Medical, Inc. (NASDAQ:VIVE) 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.
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 NUVA to grow earnings at a 15.36% annual rate over the next 5 years. Comparatively, VIVE is expected to grow at a 20.00% annual rate. All else equal, VIVE’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. NuVasive, Inc. (NUVA) has an EBITDA margin of 19.74%. This suggests that NUVA underlying business is more profitable
The value of a stock is simply the present value of its future free cash flows. NUVA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.44. Comparatively, VIVE’s free cash flow per share was -0.48. On a percent-of-sales basis, NUVA’s free cash flow was 0% while VIVE converted -0.13% of its revenues into cash flow. This means that, for a given level of sales, NUVA 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. NUVA has a current ratio of 2.90 compared to 3.90 for VIVE. This means that VIVE can more easily cover its most immediate liabilities over the next twelve months. NUVA’s debt-to-equity ratio is 0.82 versus a D/E of 2.71 for VIVE. VIVE is therefore the more solvent of the two companies, and has lower financial risk.
NUVA trades at a forward P/E of 19.67, a P/B of 3.12, and a P/S of 2.29, compared to a P/B of 12.49, and a P/S of 6.73 for VIVE. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. NUVA is currently priced at a -32.87% to its one-year price target of 69.33. Comparatively, VIVE is -61.29% relative to its price target of 11.29. This suggests that VIVE 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 NUVA and 1.90 for VIVE, which implies that analysts are more bullish on the outlook for NUVA.
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. NUVA has a beta of 0.55 and VIVE’s beta is -0.47. VIVE’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. NUVA has a short ratio of 5.87 compared to a short interest of 12.51 for VIVE. This implies that the market is currently less bearish on the outlook for NUVA.
NuVasive, Inc. (NASDAQ:NUVA) beats Viveve Medical, Inc. (NASDAQ:VIVE) on a total of 8 of the 14 factors compared between the two stocks. NUVA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, NUVA is the cheaper of the two stocks on book value and sales basis, Finally, NUVA has better sentiment signals based on short interest.