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Critical Comparison: Extreme Networks, Inc. (EXTR) vs. vTv Therapeutics Inc. (VTVT)

Extreme Networks, Inc. (NASDAQ:EXTR) shares are down more than -16.69% this year and recently decreased -5.78% or -$0.64 to settle at $10.43. vTv Therapeutics Inc. (NASDAQ:VTVT), on the other hand, is down -87.35% year to date as of 04/13/2018. It currently trades at $0.76 and has returned -77.78% during the past week.

Extreme Networks, Inc. (NASDAQ:EXTR) and vTv Therapeutics Inc. (NASDAQ:VTVT) are the two most active stocks in the Networking & Communication Devices industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect EXTR to grow earnings at a 20.00% 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 EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Extreme Networks, Inc. (EXTR) has an EBITDA margin of 2%. This suggests that EXTR underlying business is more profitable EXTR’s ROI is -2.30% while VTVT has a ROI of 34.70%. The interpretation is that VTVT’s business generates a higher return on investment than EXTR’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. EXTR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.09. Comparatively, VTVT’s free cash flow per share was -0.65. On a percent-of-sales basis, EXTR’s free cash flow was -0% while VTVT converted -7.35% of its revenues into cash flow. This means that, for a given level of sales, EXTR 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. EXTR has a current ratio of 1.10 compared to 0.80 for VTVT. This means that EXTR can more easily cover its most immediate liabilities over the next twelve months.

Valuation

EXTR trades at a forward P/E of 8.62, a P/B of 10.64, and a P/S of 1.66, compared to a P/S of 87.68 for VTVT. EXTR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. EXTR is currently priced at a -37.54% to its one-year price target of 16.70. Comparatively, VTVT is -95.85% relative to its price target of 18.33. This suggests that VTVT is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. EXTR has a short ratio of 1.93 compared to a short interest of 4.17 for VTVT. This implies that the market is currently less bearish on the outlook for EXTR.

Summary




vTv Therapeutics Inc. (NASDAQ:VTVT) beats Extreme Networks, Inc. (NASDAQ:EXTR) on a total of 7 of the 14 factors compared between the two stocks. VTVT is growing fastly and has lower financial risk. In terms of valuation, VTVT is the cheaper of the two stocks on an earnings and book value, VTVT is more undervalued relative to its price target. Finally, DVAX has better sentiment signals based on short interest.

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