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Comparing Five Prime Therapeutics, Inc. (FPRX) and Sierra Wireless, Inc. (SWIR)

Five Prime Therapeutics, Inc. (NASDAQ:FPRX) shares are down more than -38.00% this year and recently increased 4.06% or $0.53 to settle at $13.59. Sierra Wireless, Inc. (NASDAQ:SWIR), on the other hand, is up 4.65% year to date as of 09/11/2018. It currently trades at $21.40 and has returned 15.99% during the past week.

Five Prime Therapeutics, Inc. (NASDAQ:FPRX) and Sierra Wireless, Inc. (NASDAQ:SWIR) are the two most active stocks in the Biotechnology 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, SWIR is expected to grow at a 17.40% annual rate. All else equal, SWIR’s higher growth rate would imply a greater potential for capital appreciation.

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. FPRX’s ROI is -57.70% while SWIR has a ROI of -0.50%. The interpretation is that SWIR’s business generates a higher return on investment than FPRX’s.

Cash Flow



Cash is king when it comes to investing. FPRX’s free cash flow (“FCF”) per share for the trailing twelve months was -1.11. Comparatively, SWIR’s free cash flow per share was +0.23. On a percent-of-sales basis, FPRX’s free cash flow was -0.1% while SWIR converted 0% of its revenues into cash flow. This means that, for a given level of sales, SWIR 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. FPRX has a current ratio of 12.00 compared to 1.60 for SWIR. This means that FPRX can more easily cover its most immediate liabilities over the next twelve months. FPRX’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for SWIR. FPRX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FPRX trades at a P/B of 1.39, and a P/S of 8.11, compared to a forward P/E of 16.96, a P/B of 1.72, and a P/S of 1.03 for SWIR. 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. FPRX is currently priced at a -57.91% to its one-year price target of 32.29. Comparatively, SWIR is -8.39% relative to its price target of 23.36. This suggests that FPRX 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. FPRX has a beta of 3.26 and SWIR’s beta is 2.86. SWIR’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. FPRX has a short ratio of 10.47 compared to a short interest of 3.54 for SWIR. This implies that the market is currently less bearish on the outlook for SWIR.

Summary

Sierra Wireless, Inc. (NASDAQ:SWIR) beats Five Prime Therapeutics, Inc. (NASDAQ:FPRX) on a total of 8 of the 14 factors compared between the two stocks. SWIR higher liquidity, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, SWIR has better sentiment signals based on short interest.

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