Affimed N.V. (NASDAQ:AFMD) shares are up more than 284.62% this year and recently increased 4.17% or $0.2 to settle at $5.00. KEMET Corporation (NYSE:KEM), on the other hand, is up 39.84% year to date as of 09/11/2018. It currently trades at $21.06 and has returned -16.13% during the past week.
Affimed N.V. (NASDAQ:AFMD) and KEMET Corporation (NYSE:KEM) 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. Comparatively, KEM is expected to grow at a 12.00% annual rate. All else equal, KEM’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. EBITDA margin of 12.99% for KEMET Corporation (KEM). AFMD’s ROI is -70.30% while KEM has a ROI of 36.20%. The interpretation is that KEM’s business generates a higher return on investment than AFMD’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, AFMD’s free cash flow was 0% while KEM converted -2.53% of its revenues into cash flow. This means that, for a given level of sales, AFMD is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AFMD has a current ratio of 5.40 compared to 2.40 for KEM. This means that AFMD can more easily cover its most immediate liabilities over the next twelve months. AFMD’s debt-to-equity ratio is 0.13 versus a D/E of 0.68 for KEM. KEM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
AFMD trades at a P/B of 5.62, and a P/S of 166.50, compared to a forward P/E of 7.78, a P/B of 2.57, and a P/S of 0.99 for KEM. AFMD 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. AFMD is currently priced at a -29.97% to its one-year price target of 7.14. Comparatively, KEM is -28.61% relative to its price target of 29.50. This suggests that AFMD 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. AFMD has a beta of 3.50 and KEM’s beta is 3.85. AFMD’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. AFMD has a short ratio of 0.17 compared to a short interest of 1.31 for KEM. This implies that the market is currently less bearish on the outlook for AFMD.Summary
Affimed N.V. (NASDAQ:AFMD) beats KEMET Corporation (NYSE:KEM) on a total of 9 of the 14 factors compared between the two stocks. AFMD has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. AFMD is more undervalued relative to its price target. Finally, AFMD has better sentiment signals based on short interest.