Choosing Between Mallinckrodt Public Limited Company (MNK) and Patterson Companies, Inc. (PDCO)

Mallinckrodt Public Limited Company (NYSE:MNK) shares are down more than -29.17% this year and recently decreased -1.78% or -$0.29 to settle at $15.98. Patterson Companies, Inc. (NASDAQ:PDCO), on the other hand, is down -31.66% year to date as of 03/13/2018. It currently trades at $24.69 and has returned 0.16% during the past week.

Mallinckrodt Public Limited Company (NYSE:MNK) and Patterson Companies, Inc. (NASDAQ:PDCO) 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.


Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MNK to grow earnings at a 0.75% annual rate over the next 5 years. Comparatively, PDCO is expected to grow at a 4.28% annual rate. All else equal, PDCO’s higher growth rate would imply a greater potential for capital appreciation.

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., compared to an EBITDA margin of 6.61% for Patterson Companies, Inc. (PDCO). MNK’s ROI is 12.60% while PDCO has a ROI of 8.50%. The interpretation is that MNK’s business generates a higher return on investment than PDCO’s.

Cash Flow 

If there’s one thing investors care more about than earnings, it’s cash flow. MNK’s free cash flow (“FCF”) per share for the trailing twelve months was +1.82. Comparatively, PDCO’s free cash flow per share was +0.95. On a percent-of-sales basis, MNK’s free cash flow was 4.88% while PDCO converted 1.61% of its revenues into cash flow. This means that, for a given level of sales, MNK is able to generate more free cash flow for investors.

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. MNK has a current ratio of 2.20 compared to 1.80 for PDCO. This means that MNK can more easily cover its most immediate liabilities over the next twelve months. MNK’s debt-to-equity ratio is 1.03 versus a D/E of 0.81 for PDCO. MNK is therefore the more solvent of the two companies, and has lower financial risk.


MNK trades at a forward P/E of 2.28, a P/B of 0.23, and a P/S of 0.46, compared to a forward P/E of 13.10, a P/B of 1.55, and a P/S of 0.42 for PDCO. 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. MNK is currently priced at a -43.15% to its one-year price target of 28.11. Comparatively, PDCO is -9.23% relative to its price target of 27.20. This suggests that MNK 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 2.80 for MNK and 3.10 for PDCO, which implies that analysts are more bullish on the outlook for PDCO.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MNK has a beta of 1.05 and PDCO’s beta is 0.96. PDCO’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MNK has a short ratio of 8.15 compared to a short interest of 6.11 for PDCO. This implies that the market is currently less bearish on the outlook for PDCO.


Mallinckrodt Public Limited Company (NYSE:MNK) beats Patterson Companies, Inc. (NASDAQ:PDCO) on a total of 9 of the 14 factors compared between the two stocks. MNK is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, MNK is the cheaper of the two stocks on an earnings and book value, MNK is more undervalued relative to its price target. Finally, RDN has better sentiment signals based on short interest.

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