ZIOPHARM Oncology, Inc. (NASDAQ:ZIOP) and Acceleron Pharma Inc. (NASDAQ:XLRN) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. ZIOPHARM Oncology, Inc. (ZIOP) has an EBITDA margin of N/A, compared to an EBITDA margin of N/A for Acceleron Pharma Inc. (XLRN). This suggests that equal underlying business is more profitable. ZIOP’s ROI is 213.90% while XLRN has a ROI of -29.30% . The interpretation is that ZIOP’s business generates a higher return on investment than XLRN’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. ZIOP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, XLRN’s free cash flow per share was -0.50. On a percent-of-sales basis, ZIOP’s free cash flow was -0.23% while XLRN converted -0.07% of its revenues into cash flow. This means that, for a given level of sales, XLRN 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. ZIOP has a current ratio of 7.80 compared to 10.40 for XLRN. This means that XLRN can more easily cover its most immediate liabilities over the next twelve months. ZIOP’s debt-to-equity ratio is N/A versus a D/E of 0.00 for XLRN. N/A is therefore the more solvent of the two companies, and has lower financial risk.
ZIOP trades at a forward P/E of N/A, a P/B of N/A, and a P/S of 116.95, compared to a forward P/E of N/A, a P/B of 6.78, and a P/S of 90.75 for XLRN. N/A. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. ZIOP is currently priced at a -56.4% to its one-year price target of $12.50. Comparatively, XLRN is -12.97% relative to its price target of $38.00. This suggests that ZIOP is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for ZIOP and 2.10 for XLRN, which implies that analysts are more bullish on the outlook for ZIOP.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. ZIOP has a beta of 1.68 and XLRN’s beta is 1.72. ZIOP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ZIOP has a short ratio of 29.21 compared to a short interest of 11.89 for XLRN. This implies that the market is currently less bearish on the outlook for XLRN.
Acceleron Pharma Inc. (NASDAQ:XLRN) beats ZIOPHARM Oncology, Inc. (NASDAQ:ZIOP) on a total of 5 of the 10 factors compared between the two stocks. XLRN generates a higher return on investment and higher liquidity. N/A N/A Finally, XLRN has better sentiment signals based on short interest.