Earnings

Choosing Between Marvell Technology Group Ltd. (MRVL) and Synergy Pharmaceuticals Inc. (SGYP)

Marvell Technology Group Ltd. (NASDAQ:MRVL) shares are up more than 3.68% this year and recently decreased -0.27% or -$0.06 to settle at $22.26. Synergy Pharmaceuticals Inc. (NASDAQ:SGYP), on the other hand, is down -8.07% year to date as of 02/14/2018. It currently trades at $2.05 and has returned 1.49% during the past week.

Marvell Technology Group Ltd. (NASDAQ:MRVL) and Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect MRVL to grow earnings at a 22.45% annual rate over the next 5 years.



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. Marvell Technology Group Ltd. (MRVL) has an EBITDA margin of 21.32%. This suggests that MRVL underlying business is more profitable

Cash Flow 




Cash is king when it comes to investing. MRVL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.52. Comparatively, SGYP’s free cash flow per share was -0.26.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. MRVL has a current ratio of 4.90 compared to 4.30 for SGYP. This means that MRVL can more easily cover its most immediate liabilities over the next twelve months.

Valuation

MRVL trades at a forward P/E of 17.04, a P/B of 2.71, and a P/S of 4.48, compared to a P/S of 65.56 for SGYP. MRVL 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. MRVL is currently priced at a -18.34% to its one-year price target of 27.26. Comparatively, SGYP is -72.88% relative to its price target of 7.56. 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 2.20 for MRVL and 2.30 for SGYP, which implies that analysts are more bullish on the outlook for SGYP.

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. MRVL has a beta of 1.00 and SGYP’s beta is 1.19. MRVL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. MRVL has a short ratio of 3.28 compared to a short interest of 10.11 for SGYP. This implies that the market is currently less bearish on the outlook for MRVL.

Summary

Marvell Technology Group Ltd. (NASDAQ:MRVL) beats Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) on a total of 9 of the 13 factors compared between the two stocks. MRVL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. Finally, MRVL has better sentiment signals based on short interest.

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