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Dissecting the Numbers for ACADIA Pharmaceuticals Inc. (ACAD) and Magellan Midstream Partners, L.P. (MMP)

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) shares are down more than -37.20% this year and recently increased 0.48% or $0.09 to settle at $18.91. Magellan Midstream Partners, L.P. (NYSE:MMP), on the other hand, is down -15.10% year to date as of 12/06/2018. It currently trades at $60.23 and has returned 0.33% during the past week.

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) and Magellan Midstream Partners, L.P. (NYSE:MMP) 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.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect ACAD to grow earnings at a 13.60% annual rate over the next 5 years. Comparatively, MMP is expected to grow at a 8.02% annual rate. All else equal, ACAD’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. EBITDA margin of 59.95% for Magellan Midstream Partners, L.P. (MMP). ACAD’s ROI is -67.00% while MMP has a ROI of 15.80%. The interpretation is that MMP’s business generates a higher return on investment than ACAD’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. ACAD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.35. Comparatively, MMP’s free cash flow per share was -0.28. On a percent-of-sales basis, ACAD’s free cash flow was -0.04% while MMP converted -2.55% of its revenues into cash flow. This means that, for a given level of sales, ACAD 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. ACAD has a current ratio of 6.10 compared to 0.60 for MMP. This means that ACAD can more easily cover its most immediate liabilities over the next twelve months. ACAD’s debt-to-equity ratio is 0.00 versus a D/E of 1.68 for MMP. MMP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ACAD trades at a P/B of 10.56, and a P/S of 12.02, compared to a forward P/E of 13.72, a P/B of 5.40, and a P/S of 5.21 for MMP. ACAD 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. ACAD is currently priced at a -41.27% to its one-year price target of 32.20. Comparatively, MMP is -18.99% relative to its price target of 74.35. This suggests that ACAD 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. ACAD has a beta of 3.39 and MMP’s beta is 0.79. MMP’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. ACAD has a short ratio of 5.33 compared to a short interest of 7.12 for MMP. This implies that the market is currently less bearish on the outlook for ACAD.

Summary

ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) beats Magellan Midstream Partners, L.P. (NYSE:MMP) on a total of 7 of the 14 factors compared between the two stocks. ACAD is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. ACAD is more undervalued relative to its price target. Finally, ACAD has better sentiment signals based on short interest.

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