Finance

Critical Comparison: Banco Santander (Brasil) S.A. (BSBR) vs. Spectrum Pharmaceuticals, Inc. (SPPI)

Banco Santander (Brasil) S.A. (NYSE:BSBR) shares are up more than 15.20% this year and recently decreased -3.80% or -$0.43 to settle at $10.89. Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), on the other hand, is down -2.06% year to date as of 04/16/2018. It currently trades at $18.56 and has returned 26.86% during the past week.

Banco Santander (Brasil) S.A. (NYSE:BSBR) and Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) are the two most active stocks in the Foreign Regional Banks industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider 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 BSBR to grow earnings at a 17.30% 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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. BSBR’s ROI is 10.40% while SPPI has a ROI of -10.50%. The interpretation is that BSBR’s business generates a higher return on investment than SPPI’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BSBR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.53. Comparatively, SPPI’s free cash flow per share was -0.13. On a percent-of-sales basis, BSBR’s free cash flow was 7.44% while SPPI converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, BSBR is able to generate more free cash flow for investors.

Liquidity and Financial Risk

BSBR’s debt-to-equity ratio is 0.91 versus a D/E of 0.11 for SPPI. BSBR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BSBR trades at a forward P/E of 12.13, a P/B of 1.61, and a P/S of 2.00, compared to a P/B of 5.27, and a P/S of 15.83 for SPPI. 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. BSBR is currently priced at a 2.06% to its one-year price target of 10.67. Comparatively, SPPI is -36.55% relative to its price target of 29.25. This suggests that SPPI 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. BSBR has a beta of 1.71 and SPPI’s beta is 1.99. BSBR’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. BSBR has a short ratio of 4.75 compared to a short interest of 6.63 for SPPI. This implies that the market is currently less bearish on the outlook for BSBR.

Summary




Banco Santander (Brasil) S.A. (NYSE:BSBR) beats Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) on a total of 8 of the 14 factors compared between the two stocks. BSBR 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, BSBR is the cheaper of the two stocks on book value and sales basis, Finally, BSBR has better sentiment signals based on short interest.

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