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Choosing Between PDL BioPharma, Inc. (PDLI) and Apergy Corporation (APY)

PDL BioPharma, Inc. (NASDAQ:PDLI) shares are down more than -1.46% this year and recently decreased -2.53% or -$0.07 to settle at $2.70. Apergy Corporation (NYSE:APY), on the other hand, is up 4.92% year to date as of 06/13/2018. It currently trades at $39.87 and has returned -2.97% during the past week.

PDL BioPharma, Inc. (NASDAQ:PDLI) and Apergy Corporation (NYSE:APY) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PDLI to grow earnings at a 14.00% annual rate over the next 5 years.

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. PDL BioPharma, Inc. (PDLI) has an EBITDA margin of 73.77%. This suggests that PDLI underlying business is more profitable

Cash Flow



Cash is king when it comes to investing. PDLI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, APY’s free cash flow per share was -0.08.

Valuation

PDLI trades at a forward P/E of 15.43, a P/B of 0.48, and a P/S of 1.31, compared to a forward P/E of 22.15, for APY. PDLI is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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. PDLI is currently priced at a -10% to its one-year price target of 3.00. Comparatively, APY is -7.82% relative to its price target of 43.25. This suggests that PDLI is the better investment over the next year.

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. PDLI has a short ratio of 12.06 compared to a short interest of 1.73 for APY. This implies that the market is currently less bearish on the outlook for APY.

Summary

Apergy Corporation (NYSE:APY) beats PDL BioPharma, Inc. (NASDAQ:PDLI) on a total of 7 of the 13 factors compared between the two stocks. APY is growing fastly and has lower financial risk. In terms of valuation, APY is the cheaper of the two stocks on book value and sales basis, Finally, APY has better sentiment signals based on short interest.

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