Global

Comparing Avid Bioservices, Inc. (CDMO) and Ascena Retail Group, Inc. (ASNA)

Avid Bioservices, Inc. (NASDAQ:CDMO) shares are up more than 75.26% this year and recently decreased -5.16% or -$0.37 to settle at $6.80. Ascena Retail Group, Inc. (NASDAQ:ASNA), on the other hand, is up 93.19% year to date as of 09/11/2018. It currently trades at $4.54 and has returned -2.78% during the past week.

Avid Bioservices, Inc. (NASDAQ:CDMO) and Ascena Retail Group, Inc. (NASDAQ:ASNA) are the two most active stocks in the Biotechnology 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. Comparatively, ASNA is expected to grow at a 21.00% annual rate. All else equal, ASNA’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. EBITDA margin of 4.53% for Ascena Retail Group, Inc. (ASNA). CDMO’s ROI is -37.10% while ASNA has a ROI of -41.00%. The interpretation is that CDMO’s business generates a higher return on investment than ASNA’s.

Cash Flow



Cash is king when it comes to investing. CDMO’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, ASNA’s free cash flow per share was -0.27. On a percent-of-sales basis, CDMO’s free cash flow was -0% while ASNA converted -0.8% of its revenues into cash flow. This means that, for a given level of sales, CDMO 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. CDMO has a current ratio of 1.80 compared to 1.30 for ASNA. This means that CDMO can more easily cover its most immediate liabilities over the next twelve months. CDMO’s debt-to-equity ratio is 0.00 versus a D/E of 2.00 for ASNA. ASNA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CDMO trades at a P/B of 6.48, and a P/S of 7.28, compared to a P/B of 1.17, and a P/S of 0.13 for ASNA. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CDMO is currently priced at a -13.71% to its one-year price target of 7.88. Comparatively, ASNA is 34.32% relative to its price target of 3.38. This suggests that CDMO 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. CDMO has a beta of 2.37 and ASNA’s beta is 1.60. ASNA’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CDMO has a short ratio of 4.28 compared to a short interest of 17.98 for ASNA. This implies that the market is currently less bearish on the outlook for CDMO.

Summary

Avid Bioservices, Inc. (NASDAQ:CDMO) beats Ascena Retail Group, Inc. (NASDAQ:ASNA) on a total of 8 of the 14 factors compared between the two stocks. CDMO 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. CDMO is more undervalued relative to its price target. Finally, CDMO has better sentiment signals based on short interest.

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