Array BioPharma Inc. (NASDAQ:ARRY) shares are up more than 36.80% this year and recently decreased -2.72% or -$0.49 to settle at $17.51. OGE Energy Corp. (NYSE:OGE), on the other hand, is down -4.22% year to date as of 03/13/2018. It currently trades at $31.52 and has returned 1.03% during the past week.
Array BioPharma Inc. (NASDAQ:ARRY) and OGE Energy Corp. (NYSE:OGE) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ARRY to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, OGE is expected to grow at a 5.80% annual rate. All else equal, ARRY’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 38.33% for OGE Energy Corp. (OGE). ARRY’s ROI is -71.10% while OGE has a ROI of 4.50%. The interpretation is that OGE’s business generates a higher return on investment than ARRY’s.
Cash is king when it comes to investing. ARRY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.26. Comparatively, OGE’s free cash flow per share was +0.17. On a percent-of-sales basis, ARRY’s free cash flow was -0.04% while OGE converted 1.5% of its revenues into cash flow. This means that, for a given level of sales, OGE 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. ARRY has a current ratio of 6.20 compared to 0.50 for OGE. This means that ARRY can more easily cover its most immediate liabilities over the next twelve months. ARRY’s debt-to-equity ratio is 0.44 versus a D/E of 0.82 for OGE. OGE is therefore the more solvent of the two companies, and has lower financial risk.
ARRY trades at a P/B of 14.47, and a P/S of 24.87, compared to a forward P/E of 14.97, a P/B of 1.63, and a P/S of 2.78 for OGE. ARRY is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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. ARRY is currently priced at a -17.48% to its one-year price target of 21.22. Comparatively, OGE is -8.19% relative to its price target of 34.33. This suggests that ARRY 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 1.60 for ARRY and 2.10 for OGE, which implies that analysts are more bullish on the outlook for OGE.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. ARRY has a beta of 1.71 and OGE’s beta is 0.73. OGE’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. ARRY has a short ratio of 3.68 compared to a short interest of 2.91 for OGE. This implies that the market is currently less bearish on the outlook for OGE.
OGE Energy Corp. (NYSE:OGE) beats Array BioPharma Inc. (NASDAQ:ARRY) on a total of 8 of the 14 factors compared between the two stocks. OGE is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, OGE is the cheaper of the two stocks on book value and sales basis, Finally, OGE has better sentiment signals based on short interest.