The shares of Healthcare Services Group, Inc. have decreased by more than -22.91% this year alone. The shares recently went down by -3.67% or -$1.55 and now trades at $40.64. The shares of Conatus Pharmaceuticals Inc. (NASDAQ:CNAT), has slumped by -19.70% year to date as of 04/16/2018. The shares currently trade at $3.71 and have been able to report a change of -6.08% over the past one week.
The stock of Healthcare Services Group, Inc. and Conatus Pharmaceuticals Inc. were two of the most active stocks on Monday. 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.Next 5Y EPS Growth: 17.71% versus 38.00%
When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that HCSG will grow it’s earning at a 17.71% annual rate in the next 5 years. This is in contrast to CNAT which will have a positive growth at a 38.00% annual rate. This means that the higher growth rate of CNAT implies a greater potential for capital appreciation over the years.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. HCSG has an EBITDA margin of 7.6%, this implies that the underlying business of HCSG is more profitable. The ROI of HCSG is 19.90% while that of CNAT is -42.60%. These figures suggest that HCSG ventures generate a higher ROI than that of CNAT.Cash Flow
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, HCSG’s free cash flow per share is a negative -0.59, while that of CNAT is also a negative -0.03.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 HCSG is 2.90 and that of CNAT is 2.80. This implies that it is easier for HCSG to cover its immediate obligations over the next 12 months than CNAT. The debt ratio of HCSG is 0.09 compared to 0.47 for CNAT. CNAT can be able to settle its long-term debts and thus is a lower financial risk than HCSG.Valuation
HCSG currently trades at a forward P/E of 21.83, a P/B of 7.48, and a P/S of 1.61 while CNAT trades at a forward P/E of 29.44, a P/B of 3.99, and a P/S of 3.20. This means that looking at the earnings, book values and sales basis, HCSG 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 HCSG is currently at a -30.53% to its one-year price target of 58.50. Looking at its rival pricing, CNAT is at a -76.56% relative to its price target of 15.83.
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), HCSG is given a 2.00 while 1.70 placed for CNAT. This means that analysts are more bullish on the outlook for HCSG 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 HCSG is 7.93 while that of CNAT is just 1.44. This means that analysts are more bullish on the forecast for CNAT stock.
The stock of Conatus Pharmaceuticals Inc. defeats that of Healthcare Services Group, Inc. when the two are compared, with CNAT taking 6 out of the total factors that were been considered. CNAT 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, CNAT is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CNAT is better on when it is viewed on short interest.