Earnings

Choosing Between Rigel Pharmaceuticals, Inc. (RIGL) and Neurocrine Biosciences, Inc. (NBIX)

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) shares are up more than 7.22% this year and recently increased 0.97% or $0.04 to settle at $4.16. Neurocrine Biosciences, Inc. (NASDAQ:NBIX), on the other hand, is up 1.82% year to date as of 01/10/2018. It currently trades at $79.00 and has returned -1.59% during the past week.

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) and Neurocrine Biosciences, Inc. (NASDAQ:NBIX) are the two most active stocks in the Drugs – Generic industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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 RIGL to grow earnings at a 61.00% annual rate over the next 5 years. Comparatively, NBIX is expected to grow at a 40.10% annual rate. All else equal, RIGL’s higher growth rate would imply a greater potential for capital appreciation.



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. RIGL’s ROI is -126.80% while NBIX has a ROI of -46.80%. The interpretation is that NBIX’s business generates a higher return on investment than RIGL’s.

Cash Flow 




If there’s one thing investors care more about than earnings, it’s cash flow. RIGL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.14. Comparatively, NBIX’s free cash flow per share was -0.14. On a percent-of-sales basis, RIGL’s free cash flow was -0.1% while NBIX converted -0.08% of its revenues into cash flow. This means that, for a given level of sales, NBIX 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. RIGL has a current ratio of 4.60 compared to 14.40 for NBIX. This means that NBIX can more easily cover its most immediate liabilities over the next twelve months. RIGL’s debt-to-equity ratio is 0.00 versus a D/E of 1.05 for NBIX. NBIX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

RIGL trades at a P/B of 9.24, and a P/S of 84.95, compared to a P/B of 20.10, and a P/S of 103.99 for NBIX. 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”. RIGL is currently priced at a -28.64% to its one-year price target of 5.83. Comparatively, NBIX is -11.32% relative to its price target of 89.08. This suggests that RIGL 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 1.80 for RIGL and 1.60 for NBIX, which implies that analysts are more bullish on the outlook for RIGL.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. RIGL has a beta of 1.33 and NBIX’s beta is 0.22. NBIX’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. RIGL has a short ratio of 5.59 compared to a short interest of 8.82 for NBIX. This implies that the market is currently less bearish on the outlook for RIGL.

Summary

Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) beats Neurocrine Biosciences, Inc. (NASDAQ:NBIX) on a total of 6 of the 14 factors compared between the two stocks. RIGL is growing fastly and has lower financial risk. In terms of valuation, RIGL is the cheaper of the two stocks on book value and sales basis, RIGL is more undervalued relative to its price target. Finally, RIGL has better sentiment signals based on short interest.

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