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A Side-by-side Analysis of Tandem Diabetes Care, Inc. (TNDM) and Fate Therapeutics, Inc. (FATE)

Tandem Diabetes Care, Inc. (NASDAQ:TNDM) shares are up more than 1393.64% this year and recently decreased -7.92% or -$3.03 to settle at $35.25. Fate Therapeutics, Inc. (NASDAQ:FATE), on the other hand, is up 177.91% year to date as of 12/04/2018. It currently trades at $16.98 and has returned 24.94% during the past week.

Tandem Diabetes Care, Inc. (NASDAQ:TNDM) and Fate Therapeutics, Inc. (NASDAQ:FATE) are the two most active stocks based on recent 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.

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 Return on Investment (ROI) as measures of profitability and return. TNDM’s ROI is -241.70% while FATE has a ROI of -45.90%. The interpretation is that FATE’s business generates a higher return on investment than TNDM’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. TNDM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, FATE’s free cash flow per share was -0.08. On a percent-of-sales basis, TNDM’s free cash flow was -0% while FATE converted -0.13% of its revenues into cash flow. This means that, for a given level of sales, TNDM is able to generate more free cash flow for investors.

Liquidity and Financial Risk



Liquidity and leverage ratios are important because they reveal the financial health of a company. TNDM has a current ratio of 2.80 compared to 9.40 for FATE. This means that FATE can more easily cover its most immediate liabilities over the next twelve months. TNDM’s debt-to-equity ratio is 0.00 versus a D/E of 0.09 for FATE. FATE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TNDM trades at a P/B of 16.95, and a P/S of 13.65, compared to a P/B of 5.29, and a P/S of 245.30 for FATE. TNDM is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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. TNDM is currently priced at a -30.88% to its one-year price target of 51.00. Comparatively, FATE is -7.87% relative to its price target of 18.43. This suggests that TNDM 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. TNDM has a beta of 0.52 and FATE’s beta is 2.01. TNDM’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. TNDM has a short ratio of 1.62 compared to a short interest of 9.52 for FATE. This implies that the market is currently less bearish on the outlook for TNDM.

Summary




Tandem Diabetes Care, Inc. (NASDAQ:TNDM) beats Fate Therapeutics, Inc. (NASDAQ:FATE) on a total of 6 of the 14 factors compared between the two stocks. TNDM has a higher cash conversion rate and has lower financial risk. TNDM is more undervalued relative to its price target. Finally, TNDM has better sentiment signals based on short interest.

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