PTC Therapeutics, Inc. (NASDAQ:PTCT) shares are up more than 86.27% this year and recently increased 3.50% or $1.05 to settle at $31.07. Immune Design Corp. (NASDAQ:IMDZ), on the other hand, is up 14.10% year to date as of 05/16/2018. It currently trades at $4.45 and has returned 18.67% during the past week.
PTC Therapeutics, Inc. (NASDAQ:PTCT) and Immune Design Corp. (NASDAQ:IMDZ) are the two most active stocks in the Biotechnology 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PTCT to grow earnings at a -9.51% annual rate over the next 5 years. Comparatively, IMDZ is expected to grow at a 5.00% annual rate. All else equal, IMDZ’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. PTCT’s ROI is -6.50% while IMDZ has a ROI of -37.90%. The interpretation is that PTCT’s business generates a higher return on investment than IMDZ’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PTCT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.39. Comparatively, IMDZ’s free cash flow per share was -0.34. On a percent-of-sales basis, PTCT’s free cash flow was -0.01% while IMDZ converted -0.23% of its revenues into cash flow. This means that, for a given level of sales, PTCT 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. PTCT has a current ratio of 3.30 compared to 21.20 for IMDZ. This means that IMDZ can more easily cover its most immediate liabilities over the next twelve months. PTCT’s debt-to-equity ratio is 0.98 versus a D/E of 0.00 for IMDZ. PTCT is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PTCT trades at a forward P/E of 108.64, a P/B of 8.61, and a P/S of 6.66, compared to a P/B of 1.66, and a P/S of 96.08 for IMDZ. PTCT 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
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. PTCT is currently priced at a 24.28% to its one-year price target of 25.00. Comparatively, IMDZ is -62.92% relative to its price target of 12.00. This suggests that IMDZ 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. PTCT has a beta of 1.64 and IMDZ’s beta is 1.87. PTCT’s shares are therefore the less volatile of the two stocks.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. PTCT has a short ratio of 4.13 compared to a short interest of 5.67 for IMDZ. This implies that the market is currently less bearish on the outlook for PTCT.Summary
Immune Design Corp. (NASDAQ:IMDZ) beats PTC Therapeutics, Inc. (NASDAQ:PTCT) on a total of 8 of the 14 factors compared between the two stocks. IMDZ generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, IMDZ is the cheaper of the two stocks on an earnings and book value, IMDZ is more undervalued relative to its price target. Finally, HA has better sentiment signals based on short interest.