Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) shares are up more than 0.73% this year and recently increased 9.03% or $1.25 to settle at $15.10. Adamas Pharmaceuticals, Inc. (NASDAQ:ADMS), on the other hand, is up 5.08% year to date as of 01/10/2018. It currently trades at $35.61 and has returned 5.11% during the past week.
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) and Adamas Pharmaceuticals, Inc. (NASDAQ:ADMS) 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.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. IRWD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.22. Comparatively, ADMS’s free cash flow per share was -0.70. On a percent-of-sales basis, IRWD’s free cash flow was -0.01% while ADMS converted -2.8% of its revenues into cash flow. This means that, for a given level of sales, IRWD 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. IRWD has a current ratio of 4.90 compared to 8.30 for ADMS. This means that ADMS can more easily cover its most immediate liabilities over the next twelve months.
IRWD trades at a P/S of 7.79, compared to a P/B of 9.35, and a P/S of 20190.87 for ADMS. 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”. IRWD is currently priced at a -9.85% to its one-year price target of 16.75. Comparatively, ADMS is -33.6% relative to its price target of 53.63. This suggests that ADMS 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 2.40 for IRWD and 1.90 for ADMS, which implies that analysts are more bullish on the outlook for IRWD.
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. IRWD has a beta of 1.34 and ADMS’s beta is 1.10. ADMS’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. IRWD has a short ratio of 14.09 compared to a short interest of 6.69 for ADMS. This implies that the market is currently less bearish on the outlook for ADMS.
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) beats Adamas Pharmaceuticals, Inc. (NASDAQ:ADMS) on a total of 6 of the 14 factors compared between the two stocks. IRWD generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, IRWD is the cheaper of the two stocks on book value and sales basis, Finally, VSAR has better sentiment signals based on short interest.