Global

Comparing Celgene Corporation (CELG) and Kohl’s Corporation (KSS)

Celgene Corporation (NASDAQ:CELG) shares are down more than -14.97% this year and recently increased 2.24% or $1.94 to settle at $88.74. Kohl’s Corporation (NYSE:KSS), on the other hand, is up 47.58% year to date as of 09/13/2018. It currently trades at $80.03 and has returned -1.27% during the past week.

Celgene Corporation (NASDAQ:CELG) and Kohl’s Corporation (NYSE:KSS) 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. Analysts expect CELG to grow earnings at a 19.62% annual rate over the next 5 years. Comparatively, KSS is expected to grow at a 11.09% annual rate. All else equal, CELG’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., compared to an EBITDA margin of 12.25% for Kohl’s Corporation (KSS). CELG’s ROI is 20.00% while KSS has a ROI of 10.30%. The interpretation is that CELG’s business generates a higher return on investment than KSS’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, CELG’s free cash flow was 8.49% while KSS converted 0% of its revenues into cash flow. This means that, for a given level of sales, CELG 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. CELG has a current ratio of 1.50 compared to 1.80 for KSS. This means that KSS can more easily cover its most immediate liabilities over the next twelve months. CELG’s debt-to-equity ratio is 6.20 versus a D/E of 0.74 for KSS. CELG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

CELG trades at a forward P/E of 8.37, a P/B of 18.53, and a P/S of 4.50, compared to a forward P/E of 13.78, a P/B of 2.47, and a P/S of 0.68 for KSS. CELG 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CELG is currently priced at a -21.09% to its one-year price target of 112.46. Comparatively, KSS is -2.47% relative to its price target of 82.06. This suggests that CELG 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. CELG has a beta of 1.31 and KSS’s beta is 1.29. KSS’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. CELG has a short ratio of 2.84 compared to a short interest of 8.37 for KSS. This implies that the market is currently less bearish on the outlook for CELG.

Summary

Celgene Corporation (NASDAQ:CELG) beats Kohl’s Corporation (NYSE:KSS) on a total of 9 of the 14 factors compared between the two stocks. CELG is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. CELG is more undervalued relative to its price target. Finally, CELG has better sentiment signals based on short interest.

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