Endo International plc (NASDAQ:ENDP) shares are down more than -29.55% this year and recently decreased -0.36% or -$0.02 to settle at $5.46. Himax Technologies, Inc. (NASDAQ:HIMX), on the other hand, is down -30.52% year to date as of 04/16/2018. It currently trades at $7.24 and has returned 8.06% during the past week.
Endo International plc (NASDAQ:ENDP) and Himax Technologies, Inc. (NASDAQ:HIMX) are the two most active stocks in the Drug Manufacturers – Other industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ENDP to grow earnings at a -11.97% annual rate over the next 5 years. Comparatively, HIMX is expected to grow at a 25.00% annual rate. All else equal, HIMX’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Endo International plc (ENDP) has an EBITDA margin of 0.34%. This suggests that ENDP underlying business is more profitable ENDP’s ROI is -9.10% while HIMX has a ROI of 0.60%. The interpretation is that HIMX’s business generates a higher return on investment than ENDP’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. ENDP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.44. Comparatively, HIMX’s free cash flow per share was -0.04. On a percent-of-sales basis, ENDP’s free cash flow was 2.83% while HIMX converted -0% of its revenues into cash flow. This means that, for a given level of sales, ENDP 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. ENDP has a current ratio of 1.00 compared to 2.00 for HIMX. This means that HIMX can more easily cover its most immediate liabilities over the next twelve months. ENDP’s debt-to-equity ratio is 17.07 versus a D/E of 0.32 for HIMX. ENDP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ENDP trades at a forward P/E of 2.18, a P/B of 2.52, and a P/S of 0.36, compared to a forward P/E of 23.13, a P/B of 2.73, and a P/S of 1.86 for HIMX. ENDP is the cheaper of the two stocks on an earnings, book value and sales basis. 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. ENDP is currently priced at a -38.02% to its one-year price target of 8.81. Comparatively, HIMX is -22.23% relative to its price target of 9.31. This suggests that ENDP is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ENDP has a beta of 0.32 and HIMX’s beta is 0.33. ENDP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. ENDP has a short ratio of 6.62 compared to a short interest of 6.01 for HIMX. This implies that the market is currently less bearish on the outlook for HIMX.Summary
Endo International plc (NASDAQ:ENDP) beats Himax Technologies, Inc. (NASDAQ:HIMX) on a total of 8 of the 14 factors compared between the two stocks. ENDP is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, ENDP is the cheaper of the two stocks on an earnings, book value and sales basis, ENDP is more undervalued relative to its price target. Finally, NGD has better sentiment signals based on short interest.