The shares of Intrepid Potash, Inc. have decreased by more than -6.93% this year alone. The shares recently went up by 5.98% or $0.25 and now trades at $4.43. The shares of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), has jumped by 5.30% year to date as of 01/11/2018. The shares currently trade at $35.77 and have been able to report a change of -12.97% over the past one week.
The stock of Intrepid Potash, Inc. and Arena Pharmaceuticals, Inc. were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.
Profitability and Returns
Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. IPI has an EBITDA margin of 12.72%, this implies that the underlying business of IPI is more profitable. The ROI of IPI is -11.40% while that of ARNA is -16.30%. These figures suggest that IPI ventures generate a higher ROI than that of ARNA.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, IPI’s free cash flow per share is a positive 0, while that of ARNA is negative -0.02.
Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for IPI is 4.70 and that of ARNA is 4.40. This implies that it is easier for IPI to cover its immediate obligations over the next 12 months than ARNA. The debt ratio of IPI is 0.00 compared to 0.29 for ARNA. ARNA can be able to settle its long-term debts and thus is a lower financial risk than IPI.
IPI currently trades at a forward P/E of 54.02, a P/B of 1.39, and a P/S of 3.56 while ARNA trades at a P/B of 6.18, and a P/S of 13.28. This means that looking at the earnings, book values and sales basis, IPI is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.
Analyst Price Targets and Opinions
The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of IPI is currently at a 26.93% to its one-year price target of 3.49. Looking at its rival pricing, ARNA is at a -14.16% relative to its price target of 41.67. This figure implies that over the next one year, ARNA is a better investment.
When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), IPI is given a 3.60 while 1.90 placed for ARNA. This means that analysts are more bullish on the outlook for IPI stocks.
Insider Activity and Investor Sentiment
Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for IPI is 8.15 while that of ARNA is just 5.23. This means that analysts are more bullish on the forecast for ARNA stock.
The stock of Arena Pharmaceuticals, Inc. defeats that of Intrepid Potash, Inc. when the two are compared, with ARNA taking 4 out of the total factors that were been considered. ARNA happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ARNA is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ARNA is better on when it is viewed on short interest.