Global

Critical Comparison: Party City Holdco Inc. (PRTY) vs. Achillion Pharmaceuticals, Inc. (ACHN)

Party City Holdco Inc. (NYSE:PRTY) shares are up more than 10.04% this year and recently increased 0.66% or $0.1 to settle at $15.35. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), on the other hand, is up 15.28% year to date as of 09/11/2018. It currently trades at $3.32 and has returned -7.78% during the past week.

Party City Holdco Inc. (NYSE:PRTY) and Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) are the two most active stocks in the Specialty Retail, Other 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. Analysts expect PRTY to grow earnings at a 21.68% annual rate over the next 5 years. Comparatively, ACHN is expected to grow at a 17.58% annual rate. All else equal, PRTY’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. Party City Holdco Inc. (PRTY) has an EBITDA margin of 15.47%. This suggests that PRTY underlying business is more profitable

Cash Flow



Cash is king when it comes to investing. PRTY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.25. Comparatively, ACHN’s free cash flow per share was -0.10.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. PRTY has a current ratio of 1.30 compared to 35.90 for ACHN. This means that ACHN can more easily cover its most immediate liabilities over the next twelve months. PRTY’s debt-to-equity ratio is 1.93 versus a D/E of 0.00 for ACHN. PRTY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PRTY trades at a forward P/E of 7.44, a P/B of 1.49, and a P/S of 0.60, compared to a P/B of 1.56, for ACHN. PRTY 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

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”. PRTY is currently priced at a -15.52% to its one-year price target of 18.17. Comparatively, ACHN is -43.73% relative to its price target of 5.90. This suggests that ACHN is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. PRTY has a beta of 2.04 and ACHN’s beta is 1.27. ACHN’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. PRTY has a short ratio of 5.96 compared to a short interest of 4.83 for ACHN. This implies that the market is currently less bearish on the outlook for ACHN.

Summary

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) beats Party City Holdco Inc. (NYSE:PRTY) on a total of 9 of the 13 factors compared between the two stocks. ACHN is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, ACHN is the cheaper of the two stocks on an earnings and sales basis, ACHN is more undervalued relative to its price target. Finally, ACHN has better sentiment signals based on short interest.

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