Tandem Diabetes Care, Inc. (NASDAQ:TNDM) shares are up more than 45.34% this year and recently increased 19.93% or $0.57 to settle at $3.43. Insulet Corporation (NASDAQ:PODD), on the other hand, is up 9.90% year to date as of 01/10/2018. It currently trades at $75.83 and has returned 9.90% during the past week.
Tandem Diabetes Care, Inc. (NASDAQ:TNDM) and Insulet Corporation (NASDAQ:PODD) are the two most active stocks in the Medical Instruments & Supplies 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.
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 TNDM to grow earnings at a 53.20% annual rate over the next 5 years. Comparatively, PODD is expected to grow at a 25.00% annual rate. All else equal, TNDM’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. TNDM’s ROI is -106.80% while PODD has a ROI of -3.40%. The interpretation is that PODD’s business generates a higher return on investment than TNDM’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, TNDM’s free cash flow was 0% while PODD converted 0% of its revenues into cash flow. This means that, for a given level of sales, TNDM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. TNDM has a current ratio of 1.90 compared to 4.90 for PODD. This means that PODD can more easily cover its most immediate liabilities over the next twelve months.
TNDM trades at a P/S of 0.36, compared to a P/B of 59.24, and a P/S of 10.06 for PODD. 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”. TNDM is currently priced at a 11.36% to its one-year price target of 3.08. Comparatively, PODD is 11.51% relative to its price target of 68.00. This suggests that TNDM 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 3.20 for TNDM and 2.10 for PODD, which implies that analysts are more bullish on the outlook for TNDM.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. TNDM has a beta of 0.17 and PODD’s beta is 1.57. TNDM’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. TNDM has a short ratio of 1.82 compared to a short interest of 6.49 for PODD. This implies that the market is currently less bearish on the outlook for TNDM.
Tandem Diabetes Care, Inc. (NASDAQ:TNDM) beats Insulet Corporation (NASDAQ:PODD) on a total of 6 of the 14 factors compared between the two stocks. TNDM is growing fastly. In terms of valuation, TNDM is the cheaper of the two stocks on book value and sales basis, TNDM is more undervalued relative to its price target. Finally, TNDM has better sentiment signals based on short interest.