Celgene Corporation (NASDAQ:CELG) shares are down more than -3.85% this year and recently decreased -0.81% or -$0.82 to settle at $100.34. Sorrento Therapeutics, Inc. (NASDAQ:SRNE), on the other hand, is up 90.79% year to date as of 02/01/2018. It currently trades at $7.25 and has returned -5.84% during the past week.
Celgene Corporation (NASDAQ:CELG) and Sorrento Therapeutics, Inc. (NASDAQ:SRNE) are the two most active stocks in the Biotechnology 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CELG to grow earnings at a 19.70% annual rate over the next 5 years. Comparatively, SRNE is expected to grow at a 37.00% annual rate. All else equal, SRNE’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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 61.72% for Sorrento Therapeutics, Inc. (SRNE).
Cash is king when it comes to investing. On a percent-of-sales basis, CELG’s free cash flow was 0% while SRNE converted -0.2% of its revenues into cash flow. This means that, for a given level of sales, CELG is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CELG has a current ratio of 3.70 compared to 0.50 for SRNE. This means that CELG can more easily cover its most immediate liabilities over the next twelve months. CELG’s debt-to-equity ratio is 0.77 versus a D/E of 0.21 for SRNE. CELG is therefore the more solvent of the two companies, and has lower financial risk.
CELG trades at a forward P/E of 9.76, a P/B of 7.99, and a P/S of 6.03, compared to a P/B of 4.26, and a P/S of 4.22 for SRNE. CELG is the expensive 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
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”. CELG is currently priced at a -18.79% to its one-year price target of 123.56. Comparatively, SRNE is -62.82% relative to its price target of 19.50. This suggests that SRNE 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 2.20 for CELG and 1.50 for SRNE, which implies that analysts are more bullish on the outlook for CELG.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CELG has a beta of 1.51 and SRNE’s beta is 2.20. CELG’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. CELG has a short ratio of 1.87 compared to a short interest of 1.75 for SRNE. This implies that the market is currently less bearish on the outlook for SRNE.
Sorrento Therapeutics, Inc. (NASDAQ:SRNE) beats Celgene Corporation (NASDAQ:CELG) on a total of 9 of the 14 factors compared between the two stocks. SRNE generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, SRNE is the cheaper of the two stocks on an earnings, book value and sales basis, SRNE is more undervalued relative to its price target. Finally, SRNE has better sentiment signals based on short interest.