Global

Critical Comparison: CEL-SCI Corporation (CVM) vs. Arrowhead Pharmaceuticals, Inc. (ARWR)

CEL-SCI Corporation (NYSE:CVM) shares are up more than 104.25% this year and recently decreased -0.52% or -$0.02 to settle at $3.86. Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), on the other hand, is up 438.59% year to date as of 09/11/2018. It currently trades at $19.82 and has returned 29.46% during the past week.

CEL-SCI Corporation (NYSE:CVM) and Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, ARWR is expected to grow at a 7.33% annual rate. All else equal, ARWR’s higher growth rate would imply a greater potential for capital appreciation.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. CVM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.17. Comparatively, ARWR’s free cash flow per share was -0.17. On a percent-of-sales basis, CVM’s free cash flow was -6.07% while ARWR converted -0.05% of its revenues into cash flow. This means that, for a given level of sales, ARWR is able to generate more free cash flow for investors.

Liquidity and Financial Risk



Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CVM has a current ratio of 0.40 compared to 8.70 for ARWR. This means that ARWR can more easily cover its most immediate liabilities over the next twelve months.

Valuation

CVM trades at a P/S of 210.08, compared to a P/B of 16.94, and a P/S of 126.00 for ARWR. CVM 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. CVM is currently priced at a -94.85% to its one-year price target of 75.00. Comparatively, ARWR is 34.37% relative to its price target of 14.75. This suggests that CVM 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. CVM has a beta of -0.14 and ARWR’s beta is 1.66. CVM’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. CVM has a short ratio of 1.03 compared to a short interest of 5.75 for ARWR. This implies that the market is currently less bearish on the outlook for CVM.

Summary




CEL-SCI Corporation (NYSE:CVM) beats Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) on a total of 6 of the 14 factors compared between the two stocks. CVM generates a higher return on investment and has lower financial risk. CVM is more undervalued relative to its price target. Finally, CVM has better sentiment signals based on short interest.

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