Nektar Therapeutics (NASDAQ:NKTR) shares are up more than 56.51% this year and recently decreased -7.00% or -$7.03 to settle at $93.47. iBio, Inc. (NYSE:IBIO), on the other hand, is down -1.52% year to date as of 04/16/2018. It currently trades at $0.17 and has returned -16.52% during the past week.
Nektar Therapeutics (NASDAQ:NKTR) and iBio, Inc. (NYSE:IBIO) are the two most active stocks in the Biotechnology 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 NKTR to grow earnings at a -7.30% annual rate over the next 5 years.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 Return on Investment (ROI) as measures of profitability and return. NKTR’s ROI is -18.10% while IBIO has a ROI of -41.70%. The interpretation is that NKTR’s business generates a higher return on investment than IBIO’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. NKTR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.52. Comparatively, IBIO’s free cash flow per share was -0.04. On a percent-of-sales basis, NKTR’s free cash flow was -0.03% while IBIO converted -1.19% of its revenues into cash flow. This means that, for a given level of sales, NKTR is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. NKTR has a current ratio of 5.80 compared to 3.80 for IBIO. This means that NKTR can more easily cover its most immediate liabilities over the next twelve months. NKTR’s debt-to-equity ratio is 0.00 versus a D/E of 3.23 for IBIO. IBIO is therefore the more solvent of the two companies, and has lower financial risk.Valuation
NKTR trades at a P/B of 169.95, and a P/S of 50.46, compared to a P/B of 2.18, and a P/S of 42.65 for IBIO. 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. NKTR is currently priced at a -4.13% to its one-year price target of 97.50. Comparatively, IBIO is -94.33% relative to its price target of 3.00. This suggests that IBIO 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. NKTR has a beta of 1.74 and IBIO’s beta is 0.36. IBIO’s shares are therefore the less volatile of the two stocks.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. NKTR has a short ratio of 3.34 compared to a short interest of 0.84 for IBIO. This implies that the market is currently less bearish on the outlook for IBIO.Summary
iBio, Inc. (NYSE:IBIO) beats Nektar Therapeutics (NASDAQ:NKTR) on a total of 8 of the 14 factors compared between the two stocks. IBIO generates a higher return on investment and has higher cash flow per share. In terms of valuation, IBIO is the cheaper of the two stocks on book value and sales basis, IBIO is more undervalued relative to its price target. Finally, IBIO has better sentiment signals based on short interest.