Amarin Corporation plc (NASDAQ:AMRN) shares are down more than -20.45% this year and recently increased 0.31% or $0.01 to settle at $3.19. Sonic Corp. (NASDAQ:SONC), on the other hand, is up 40.28% year to date as of 09/11/2018. It currently trades at $38.55 and has returned 5.67% during the past week.
Amarin Corporation plc (NASDAQ:AMRN) and Sonic Corp. (NASDAQ:SONC) 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect AMRN to grow earnings at a 35.40% annual rate over the next 5 years. Comparatively, SONC is expected to grow at a 15.27% annual rate. All else equal, AMRN’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 34.68% for Sonic Corp. (SONC). AMRN’s ROI is -154.70% while SONC has a ROI of 20.50%. The interpretation is that SONC’s business generates a higher return on investment than AMRN’s.Cash Flow
Cash is king when it comes to investing. AMRN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, SONC’s free cash flow per share was +0.48. On a percent-of-sales basis, AMRN’s free cash flow was -0.01% while SONC converted 0% of its revenues into cash flow. This means that, for a given level of sales, SONC 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. AMRN has a current ratio of 1.40 compared to 1.80 for SONC. This means that SONC can more easily cover its most immediate liabilities over the next twelve months.Valuation
AMRN trades at a P/S of 4.84, compared to a forward P/E of 23.41, and a P/S of 3.10 for SONC. AMRN is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. AMRN is currently priced at a -58.03% to its one-year price target of 7.60. Comparatively, SONC is 13.88% relative to its price target of 33.85. This suggests that AMRN is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. AMRN has a beta of 0.92 and SONC’s beta is 1.50. AMRN’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. AMRN has a short ratio of 2.27 compared to a short interest of 5.57 for SONC. This implies that the market is currently less bearish on the outlook for AMRN.Summary
Sonic Corp. (NASDAQ:SONC) beats Amarin Corporation plc (NASDAQ:AMRN) on a total of 7 of the 13 factors compared between the two stocks. SONC is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, SBGL has better sentiment signals based on short interest.