AbbVie Inc. (NYSE:ABBV) shares are down more than -4.25% this year and recently increased 0.84% or $0.77 to settle at $92.60. Mattel, Inc. (NASDAQ:MAT), on the other hand, is down -4.29% year to date as of 04/16/2018. It currently trades at $14.72 and has returned 12.37% during the past week.
AbbVie Inc. (NYSE:ABBV) and Mattel, Inc. (NASDAQ:MAT) are the two most active stocks in the Drug Manufacturers – Major industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect ABBV to grow earnings at a 16.82% annual rate over the next 5 years. Comparatively, MAT is expected to grow at a 9.87% annual rate. All else equal, ABBV’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. AbbVie Inc. (ABBV) has an EBITDA margin of 36.26%. This suggests that ABBV underlying business is more profitable ABBV’s ROI is 25.40% while MAT has a ROI of -22.80%. The interpretation is that ABBV’s business generates a higher return on investment than MAT’s.Cash Flow
Cash is king when it comes to investing. ABBV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.86. Comparatively, MAT’s free cash flow per share was +1.89. On a percent-of-sales basis, ABBV’s free cash flow was 4.84% while MAT converted 13.32% of its revenues into cash flow. This means that, for a given level of sales, MAT 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. ABBV has a current ratio of 1.30 compared to 1.90 for MAT. This means that MAT can more easily cover its most immediate liabilities over the next twelve months. ABBV’s debt-to-equity ratio is 7.33 versus a D/E of 2.48 for MAT. ABBV is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ABBV trades at a forward P/E of 10.61, a P/B of 29.03, and a P/S of 5.22, compared to a forward P/E of 28.92, a P/B of 4.03, and a P/S of 1.04 for MAT. ABBV is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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
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. ABBV is currently priced at a -22.68% to its one-year price target of 119.76. Comparatively, MAT is -2.39% relative to its price target of 15.08. This suggests that ABBV is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ABBV has a beta of 1.58 and MAT’s beta is 0.97. MAT’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. ABBV has a short ratio of 1.95 compared to a short interest of 9.69 for MAT. This implies that the market is currently less bearish on the outlook for ABBV.Summary
Mattel, Inc. (NASDAQ:MAT) beats AbbVie Inc. (NYSE:ABBV) on a total of 7 of the 14 factors compared between the two stocks. MAT is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, MAT is the cheaper of the two stocks on book value and sales basis,