Nektar Therapeutics (NASDAQ:NKTR) shares are up more than 43.67% this year and recently increased 2.88% or $2.4 to settle at $85.80. CymaBay Therapeutics, Inc. (NASDAQ:CBAY), on the other hand, is up 31.52% year to date as of 05/16/2018. It currently trades at $12.10 and has returned 3.77% during the past week.
Nektar Therapeutics (NASDAQ:NKTR) and CymaBay Therapeutics, Inc. (NASDAQ:CBAY) 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect NKTR to grow earnings at a -7.30% annual rate over the next 5 years.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 Return on Investment (ROI) to measure this. NKTR’s ROI is -18.10% while CBAY has a ROI of -23.40%. The interpretation is that NKTR’s business generates a higher return on investment than CBAY’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. NKTR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.33. Comparatively, CBAY’s free cash flow per share was -0.12. On a percent-of-sales basis, NKTR’s free cash flow was -0.02% while CBAY converted -0.07% of its revenues into cash flow. This means that, for a given level of sales, NKTR 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. NKTR has a current ratio of 4.20 compared to 6.30 for CBAY. This means that CBAY can more easily cover its most immediate liabilities over the next twelve months. NKTR’s debt-to-equity ratio is 0.00 versus a D/E of 0.07 for CBAY. CBAY is therefore the more solvent of the two companies, and has lower financial risk.Valuation
NKTR trades at a P/B of 238.33, and a P/S of 44.84, compared to a P/B of 6.27, and a P/S of 77.72 for CBAY. NKTR 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
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. NKTR is currently priced at a -16.29% to its one-year price target of 102.50. Comparatively, CBAY is -44.37% relative to its price target of 21.75. This suggests that CBAY is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NKTR has a beta of 1.75 and CBAY’s beta is 1.90. NKTR’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. NKTR has a short ratio of 3.93 compared to a short interest of 2.81 for CBAY. This implies that the market is currently less bearish on the outlook for CBAY.Summary
CymaBay Therapeutics, Inc. (NASDAQ:CBAY) beats Nektar Therapeutics (NASDAQ:NKTR) on a total of 6 of the 14 factors compared between the two stocks. CBAY generates a higher return on investment, has higher cash flow per share and higher liquidity. CBAY is more undervalued relative to its price target. Finally, CBAY has better sentiment signals based on short interest.