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Choosing Between GNC Holdings, Inc. (GNC) and Dynavax Technologies Corporation (DVAX)

GNC Holdings, Inc. (NYSE:GNC) shares are down more than -1.63% this year and recently decreased -4.72% or -$0.18 to settle at $3.63. Dynavax Technologies Corporation (NASDAQ:DVAX), on the other hand, is up 5.61% year to date as of 04/13/2018. It currently trades at $19.75 and has returned 6.47% during the past week.

GNC Holdings, Inc. (NYSE:GNC) and Dynavax Technologies Corporation (NASDAQ:DVAX) are the two most active stocks in the Pharmaceutical Retailers industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect GNC to grow earnings at a -12.80% annual rate over the next 5 years.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. GNC’s ROI is -15.50% while DVAX has a ROI of -48.10%. The interpretation is that GNC’s business generates a higher return on investment than DVAX’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. GNC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.93. Comparatively, DVAX’s free cash flow per share was -0.30. On a percent-of-sales basis, GNC’s free cash flow was 3.17% while DVAX converted -5.61% of its revenues into cash flow. This means that, for a given level of sales, GNC 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. GNC has a current ratio of 2.80 compared to 10.70 for DVAX. This means that DVAX can more easily cover its most immediate liabilities over the next twelve months.

Valuation

GNC trades at a forward P/E of 4.28, and a P/S of 0.13, compared to a P/B of 6.04, and a P/S of 4266.66 for DVAX. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. GNC is currently priced at a 0% to its one-year price target of 3.63. Comparatively, DVAX is -31.49% relative to its price target of 28.83. This suggests that DVAX is the better investment over the next year.

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. GNC has a beta of 0.84 and DVAX’s beta is 0.85. GNC’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. GNC has a short ratio of 6.06 compared to a short interest of 4.46 for DVAX. This implies that the market is currently less bearish on the outlook for DVAX.

Summary

Dynavax Technologies Corporation (NASDAQ:DVAX) beats GNC Holdings, Inc. (NYSE:GNC) on a total of 7 of the 14 factors compared between the two stocks. DVAX generates a higher return on investment, higher liquidity and has lower financial risk. DVAX is more undervalued relative to its price target. Finally, DVAX has better sentiment signals based on short interest.

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