Finance

A Side-by-side Analysis of Dick’s Sporting Goods, Inc. (DKS) and Synergy Pharmaceuticals Inc. (SGYP)

Dick’s Sporting Goods, Inc. (NYSE:DKS) shares are up more than 11.87% this year and recently decreased -2.16% or -$0.71 to settle at $32.15. Synergy Pharmaceuticals Inc. (NASDAQ:SGYP), on the other hand, is down -20.63% year to date as of 04/16/2018. It currently trades at $1.77 and has returned -5.85% during the past week.

Dick’s Sporting Goods, Inc. (NYSE:DKS) and Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) are the two most active stocks in the Sporting Goods Stores 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect DKS to grow earnings at a 5.27% annual rate over the next 5 years.

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. Dick’s Sporting Goods, Inc. (DKS) has an EBITDA margin of 8.7%. This suggests that DKS underlying business is more profitable DKS’s ROI is 15.60% while SGYP has a ROI of -201.10%. The interpretation is that DKS’s business generates a higher return on investment than SGYP’s.

Cash Flow



Cash is king when it comes to investing. DKS’s free cash flow (“FCF”) per share for the trailing twelve months was +4.92. Comparatively, SGYP’s free cash flow per share was -0.14. On a percent-of-sales basis, DKS’s free cash flow was 6.15% while SGYP converted -0.21% of its revenues into cash flow. This means that, for a given level of sales, DKS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. DKS has a current ratio of 1.40 compared to 4.30 for SGYP. This means that SGYP can more easily cover its most immediate liabilities over the next twelve months.

Valuation

DKS trades at a forward P/E of 10.45, a P/B of 1.72, and a P/S of 0.43, compared to a P/S of 26.56 for SGYP. DKS 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

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. DKS is currently priced at a -11.29% to its one-year price target of 36.24. Comparatively, SGYP is -75% relative to its price target of 7.08. This suggests that SGYP is the better investment over the next year.

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. DKS has a beta of 0.51 and SGYP’s beta is 1.21. DKS’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. DKS has a short ratio of 3.54 compared to a short interest of 11.25 for SGYP. This implies that the market is currently less bearish on the outlook for DKS.

Summary

Dick’s Sporting Goods, Inc. (NYSE:DKS) beats Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) on a total of 8 of the 14 factors compared between the two stocks. DKS is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, DKS has better sentiment signals based on short interest.

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