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Comparing Synergy Pharmaceuticals Inc. (SGYP) and Cara Therapeutics, Inc. (CARA)

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) shares are down more than -14.80% this year and recently increased 1.60% or $0.03 to settle at $1.90. Cara Therapeutics, Inc. (NASDAQ:CARA), on the other hand, is up 75.82% year to date as of 07/11/2018. It currently trades at $21.52 and has returned 7.06% during the past week.

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) and Cara Therapeutics, Inc. (NASDAQ:CARA) are the two most active stocks in the Drug Manufacturers – Other industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. SGYP’s ROI is -201.10% while CARA has a ROI of -37.70%. The interpretation is that CARA’s business generates a higher return on investment than SGYP’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. SGYP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, CARA’s free cash flow per share was -0.57. On a percent-of-sales basis, SGYP’s free cash flow was -0.22% while CARA converted -2.05% of its revenues into cash flow. This means that, for a given level of sales, SGYP 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. SGYP has a current ratio of 3.10 compared to 11.50 for CARA. This means that CARA can more easily cover its most immediate liabilities over the next twelve months.

Valuation

SGYP trades at a P/S of 18.52, compared to a P/B of 9.74, for CARA. SGYP is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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

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. SGYP is currently priced at a -73.16% to its one-year price target of 7.08. Comparatively, CARA is -16.43% relative to its price target of 25.75. This suggests that SGYP is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. SGYP has a beta of 1.17 and CARA’s beta is 3.03. SGYP’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. SGYP has a short ratio of 18.85 compared to a short interest of 5.55 for CARA. This implies that the market is currently less bearish on the outlook for CARA.

Summary




Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) beats Cara Therapeutics, Inc. (NASDAQ:CARA) on a total of 6 of the 14 factors compared between the two stocks. SGYP has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. SGYP is more undervalued relative to its price target. Finally, CECO has better sentiment signals based on short interest.

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