Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) shares are up more than 2.51% this year and recently decreased -1.08% or -$0.2 to settle at $18.40. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), on the other hand, is up 5.71% year to date as of 01/10/2018. It currently trades at $53.17 and has returned 7.46% during the past week.
Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) and Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) are the two most active stocks in the Drug Manufacturers – Other 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SCMP to grow earnings at a 3.00% annual rate over the next 5 years. Comparatively, IONS is expected to grow at a 41.00% annual rate. All else equal, IONS’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. SCMP’s ROI is 9.60% while IONS has a ROI of -7.70%. The interpretation is that SCMP’s business generates a higher return on investment than IONS’s.
The value of a stock is simply the present value of its future free cash flows. SCMP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, IONS’s free cash flow per share was +0.09. On a percent-of-sales basis, SCMP’s free cash flow was -0% while IONS converted 0% of its revenues into cash flow. This means that, for a given level of sales, SCMP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. SCMP has a current ratio of 5.10 compared to 6.30 for IONS. This means that IONS can more easily cover its most immediate liabilities over the next twelve months. SCMP’s debt-to-equity ratio is 0.00 versus a D/E of 1.94 for IONS. IONS is therefore the more solvent of the two companies, and has lower financial risk.
SCMP trades at a forward P/E of 14.76, a P/B of 21.40, and a P/S of 3.44, compared to a forward P/E of 340.83, a P/B of 21.44, and a P/S of 13.23 for IONS. SCMP is the cheaper of the two stocks on an earnings, book value and sales basis. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. SCMP is currently priced at a -13.08% to its one-year price target of 21.17. Comparatively, IONS is -6.47% relative to its price target of 56.85. This suggests that SCMP 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 2.70 for SCMP and 2.80 for IONS, which implies that analysts are more bullish on the outlook for IONS.
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. SCMP has a beta of 1.46 and IONS’s beta is 2.63. SCMP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SCMP has a short ratio of 3.04 compared to a short interest of 10.64 for IONS. This implies that the market is currently less bearish on the outlook for SCMP.
Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) beats Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) on a total of 9 of the 14 factors compared between the two stocks. SCMP generates a higher return on investment and has lower financial risk. In terms of valuation, SCMP is the cheaper of the two stocks on an earnings, book value and sales basis, SCMP is more undervalued relative to its price target. Finally, SCMP has better sentiment signals based on short interest.