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Celgene Corporation (CELG) vs. The Western Union Company (WU): Which is the Better Investment?

Celgene Corporation (NASDAQ:CELG) shares are down more than -30.56% this year and recently decreased -1.29% or -$0.95 to settle at $72.47. The Western Union Company (NYSE:WU), on the other hand, is down -3.42% year to date as of 12/04/2018. It currently trades at $18.36 and has returned -1.55% during the past week.

Celgene Corporation (NASDAQ:CELG) and The Western Union Company (NYSE:WU) are the two most active stocks based on recent trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CELG to grow earnings at a 19.80% annual rate over the next 5 years. Comparatively, WU is expected to grow at a 3.83% annual rate. All else equal, CELG’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., compared to an EBITDA margin of 15.61% for The Western Union Company (WU). CELG’s ROI is 20.00% while WU has a ROI of 15.60%. The interpretation is that CELG’s business generates a higher return on investment than WU’s.

Cash Flow



Cash is king when it comes to investing. CELG’s free cash flow (“FCF”) per share for the trailing twelve months was +2.58. Comparatively, WU’s free cash flow per share was +0.21. On a percent-of-sales basis, CELG’s free cash flow was 13.87% while WU converted 1.68% 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.

Valuation

CELG trades at a forward P/E of 7.00, a P/B of 10.47, and a P/S of 3.45, compared to a forward P/E of 9.45, and a P/S of 1.44 for WU. 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 -33.04% to its one-year price target of 108.23. Comparatively, WU is -7.18% relative to its price target of 19.78. This suggests that CELG 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. CELG has a beta of 1.51 and WU’s beta is 1.05. WU’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 2.26 compared to a short interest of 6.01 for WU. This implies that the market is currently less bearish on the outlook for CELG.

Summary




Celgene Corporation (NASDAQ:CELG) beats The Western Union Company (NYSE:WU) on a total of 10 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, has a higher cash conversion rate and higher liquidity. CELG is more undervalued relative to its price target. Finally, CELG has better sentiment signals based on short interest.

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