Should You Buy Leucadia National Corporation (LUK) or Prothena Corporation plc (PRTA)?

Leucadia National Corporation (NYSE:LUK) shares are down more than -10.19% this year and recently decreased -3.17% or -$0.78 to settle at $23.79. Prothena Corporation plc (NASDAQ:PRTA), on the other hand, is down -56.04% year to date as of 05/15/2018. It currently trades at $16.48 and has returned 15.65% during the past week.

Leucadia National Corporation (NYSE:LUK) and Prothena Corporation plc (NASDAQ:PRTA) are the two most active stocks in the Investment Brokerage – National industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.


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 LUK to grow earnings at a 18.00% annual rate over the next 5 years. Comparatively, PRTA is expected to grow at a -6.99% annual rate. All else equal, LUK’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. Leucadia National Corporation (LUK) has an EBITDA margin of 6.88%. This suggests that LUK underlying business is more profitable LUK’s ROI is 2.80% while PRTA has a ROI of -37.10%. The interpretation is that LUK’s business generates a higher return on investment than PRTA’s.

Cash Flow

The amount of free cash flow available to investors is ultimately what determines the value of a stock. LUK’s free cash flow (“FCF”) per share for the trailing twelve months was -3.10. Comparatively, PRTA’s free cash flow per share was -0.82. On a percent-of-sales basis, LUK’s free cash flow was -9.34% while PRTA converted -0.12% of its revenues into cash flow. This means that, for a given level of sales, PRTA 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. LUK has a current ratio of 0.70 compared to 15.10 for PRTA. This means that PRTA can more easily cover its most immediate liabilities over the next twelve months. LUK’s debt-to-equity ratio is 2.04 versus a D/E of 0.00 for PRTA. LUK is therefore the more solvent of the two companies, and has lower financial risk.


LUK trades at a forward P/E of 13.83, a P/B of 0.85, and a P/S of 0.69, compared to a P/B of 1.56, and a P/S of 23.18 for PRTA. 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. LUK is currently priced at a -30.03% to its one-year price target of 34.00. Comparatively, PRTA is 18.65% relative to its price target of 13.89. This suggests that LUK 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. LUK has a beta of 1.29 and PRTA’s beta is 2.78. LUK’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. LUK has a short ratio of 1.40 compared to a short interest of 4.35 for PRTA. This implies that the market is currently less bearish on the outlook for LUK.


Leucadia National Corporation (NYSE:LUK) beats Prothena Corporation plc (NASDAQ:PRTA) on a total of 9 of the 14 factors compared between the two stocks. LUK is growing fastly, is more profitable and generates a higher return on investment. In terms of valuation, LUK is the cheaper of the two stocks on book value and sales basis, LUK is more undervalued relative to its price target. Finally, LUK has better sentiment signals based on short interest.

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