EyeGate Pharmaceuticals, Inc. (NASDAQ:EYEG) shares are down more than -66.82% this year and recently decreased -7.31% or -$0.03 to settle at $0.35. Sorrento Therapeutics, Inc. (NASDAQ:SRNE), on the other hand, is up 53.95% year to date as of 04/13/2018. It currently trades at $5.85 and has returned 2.63% during the past week.
EyeGate Pharmaceuticals, Inc. (NASDAQ:EYEG) and Sorrento Therapeutics, Inc. (NASDAQ:SRNE) are the two most active stocks in the Biotechnology industry 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.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. Comparatively, SRNE is expected to grow at a 37.00% annual rate. All else equal, SRNE’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 2.16% for Sorrento Therapeutics, Inc. (SRNE). EYEG’s ROI is 695.60% while SRNE has a ROI of 27.40%. The interpretation is that EYEG’s business generates a higher return on investment than SRNE’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. EYEG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.09. Comparatively, SRNE’s free cash flow per share was -0.56. On a percent-of-sales basis, EYEG’s free cash flow was -0.38% while SRNE converted -0.03% of its revenues into cash flow. This means that, for a given level of sales, SRNE is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. EYEG has a current ratio of 0.60 compared to 0.40 for SRNE. This means that EYEG can more easily cover its most immediate liabilities over the next twelve months.Valuation
EYEG trades at a P/S of 16.50, compared to a P/B of 2.36, and a P/S of 3.78 for SRNE. EYEG is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. EYEG is currently priced at a -93.83% to its one-year price target of 5.67. Comparatively, SRNE is -76.6% relative to its price target of 25.00. This suggests that EYEG is the better investment over the next year.
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. EYEG has a short ratio of 0.83 compared to a short interest of 3.03 for SRNE. This implies that the market is currently less bearish on the outlook for EYEG.Summary
EyeGate Pharmaceuticals, Inc. (NASDAQ:EYEG) beats Sorrento Therapeutics, Inc. (NASDAQ:SRNE) on a total of 8 of the 14 factors compared between the two stocks. EYEG generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. EYEG is more undervalued relative to its price target. Finally, EYEG has better sentiment signals based on short interest.