Akamai Technologies, Inc. (NASDAQ:AKAM) shares are up more than 16.99% this year and recently increased 2.01% or $1.5 to settle at $76.09. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), on the other hand, is down -39.79% year to date as of 05/17/2018. It currently trades at $18.13 and has returned -0.71% during the past week.
Akamai Technologies, Inc. (NASDAQ:AKAM) and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) are the two most active stocks in the Internet Information Providers 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
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 AKAM to grow earnings at a 15.91% annual rate over the next 5 years. Comparatively, ACAD is expected to grow at a 38.30% annual rate. All else equal, ACAD’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. Akamai Technologies, Inc. (AKAM) has an EBITDA margin of 27.21%. This suggests that AKAM underlying business is more profitable AKAM’s ROI is 6.10% while ACAD has a ROI of -67.00%. The interpretation is that AKAM’s business generates a higher return on investment than ACAD’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. AKAM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.46. Comparatively, ACAD’s free cash flow per share was -0.37. On a percent-of-sales basis, AKAM’s free cash flow was 3.14% while ACAD converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, AKAM is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. AKAM has a current ratio of 1.30 compared to 7.40 for ACAD. This means that ACAD can more easily cover its most immediate liabilities over the next twelve months. AKAM’s debt-to-equity ratio is 0.20 versus a D/E of 0.00 for ACAD. AKAM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
AKAM trades at a forward P/E of 20.18, a P/B of 3.82, and a P/S of 5.13, compared to a P/B of 7.43, and a P/S of 14.30 for ACAD. 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. AKAM is currently priced at a -4.07% to its one-year price target of 79.32. Comparatively, ACAD is -63.84% relative to its price target of 50.14. This suggests that ACAD is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. AKAM has a beta of 0.64 and ACAD’s beta is 3.39. AKAM’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. AKAM has a short ratio of 2.81 compared to a short interest of 4.08 for ACAD. This implies that the market is currently less bearish on the outlook for AKAM.Summary
Akamai Technologies, Inc. (NASDAQ:AKAM) beats ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) on a total of 8 of the 14 factors compared between the two stocks. AKAM is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, AKAM is the cheaper of the two stocks on book value and sales basis, Finally, AKAM has better sentiment signals based on short interest.