Boston Scientific Corporation (NYSE:BSX) shares are up more than 28.00% this year and recently decreased -6.24% or -$2.11 to settle at $31.73. Palatin Technologies, Inc. (NYSE:PTN), on the other hand, is up 9.45% year to date as of 06/13/2018. It currently trades at $0.94 and has returned -16.06% during the past week.
Boston Scientific Corporation (NYSE:BSX) and Palatin Technologies, Inc. (NYSE:PTN) are the two most active stocks in the Medical Appliances & Equipment 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
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BSX to grow earnings at a 10.48% 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., compared to an EBITDA margin of 35.4% for Palatin Technologies, Inc. (PTN). BSX’s ROI is 10.40% while PTN has a ROI of -124.40%. The interpretation is that BSX’s business generates a higher return on investment than PTN’s.Cash Flow
Cash is king when it comes to investing. BSX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, PTN’s free cash flow per share was -0.04. On a percent-of-sales basis, BSX’s free cash flow was 1.52% while PTN converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, BSX is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. BSX has a current ratio of 0.80 compared to 1.90 for PTN. This means that PTN can more easily cover its most immediate liabilities over the next twelve months. BSX’s debt-to-equity ratio is 0.82 versus a D/E of 0.80 for PTN. BSX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BSX trades at a forward P/E of 20.25, a P/B of 6.21, and a P/S of 4.71, compared to a P/B of 18.80, and a P/S of 2.43 for PTN. BSX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
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. BSX is currently priced at a -3.14% to its one-year price target of 32.76. Comparatively, PTN is -82.91% relative to its price target of 5.50. This suggests that PTN is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. BSX has a beta of 0.78 and PTN’s beta is 1.70. BSX’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. BSX has a short ratio of 2.16 compared to a short interest of 5.65 for PTN. This implies that the market is currently less bearish on the outlook for BSX.Summary
Boston Scientific Corporation (NYSE:BSX) beats Palatin Technologies, Inc. (NYSE:PTN) on a total of 7 of the 14 factors compared between the two stocks. BSX is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, BSX has better sentiment signals based on short interest.