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Portola Pharmaceuticals, Inc. (PTLA) vs. Carvana Co. (CVNA): Breaking Down the Biotechnology Industry’s Two Hottest Stocks

Portola Pharmaceuticals, Inc. (NASDAQ:PTLA) shares are down more than -15.32% this year and recently decreased -4.80% or -$2.08 to settle at $41.22. Carvana Co. (NYSE:CVNA), on the other hand, is up 93.99% year to date as of 06/13/2018. It currently trades at $37.09 and has returned 12.70% during the past week.

Portola Pharmaceuticals, Inc. (NASDAQ:PTLA) and Carvana Co. (NYSE:CVNA) 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.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. PTLA’s ROI is -60.40% while CVNA has a ROI of -49.20%. The interpretation is that CVNA’s business generates a higher return on investment than PTLA’s.

Cash Flow

Earnings don’t always accurately reflect the amount of cash that a company brings in. PTLA’s free cash flow (“FCF”) per share for the trailing twelve months was -1.36. Comparatively, CVNA’s free cash flow per share was -8.78. On a percent-of-sales basis, PTLA’s free cash flow was -0.4% while CVNA converted -0.14% of its revenues into cash flow. This means that, for a given level of sales, CVNA is able to generate more free cash flow for investors.

Liquidity and Financial Risk



Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PTLA has a current ratio of 7.60 compared to 1.30 for CVNA. This means that PTLA can more easily cover its most immediate liabilities over the next twelve months. PTLA’s debt-to-equity ratio is 0.35 versus a D/E of 19.33 for CVNA. CVNA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PTLA trades at a P/B of 8.77, and a P/S of 117.25, compared to a P/B of 31.17, and a P/S of 4.47 for CVNA. PTLA 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. PTLA is currently priced at a -31.87% to its one-year price target of 60.50. Comparatively, CVNA is 19.34% relative to its price target of 31.08. This suggests that PTLA is the better investment over the next year.

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. PTLA has a short ratio of 5.53 compared to a short interest of 9.89 for CVNA. This implies that the market is currently less bearish on the outlook for PTLA.

Summary

Portola Pharmaceuticals, Inc. (NASDAQ:PTLA) beats Carvana Co. (NYSE:CVNA) on a total of 7 of the 14 factors compared between the two stocks. PTLA has higher cash flow per share, higher liquidity and has lower financial risk. PTLA is more undervalued relative to its price target. Finally, PTLA has better sentiment signals based on short interest.

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