Earnings

Choosing Between Flexion Therapeutics, Inc. (FLXN) and Rigel Pharmaceuticals, Inc. (RIGL)

Flexion Therapeutics, Inc. (NASDAQ:FLXN) shares are up more than 33.75% this year and recently decreased -3.81% or -$0.97 to settle at $24.47. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), on the other hand, is up 56.72% year to date as of 12/05/2017. It currently trades at $3.67 and has returned -11.40% during the past week.

Flexion Therapeutics, Inc. (NASDAQ:FLXN) and Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) are the two most active stocks in the Drugs – Generic industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

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. Comparatively, RIGL is expected to grow at a 61.00% annual rate. All else equal, RIGL’s higher growth rate would imply a greater potential for capital appreciation.



Cash Flow 

Cash is king when it comes to investing. FLXN’s free cash flow (“FCF”) per share for the trailing twelve months was -0.75. Comparatively, RIGL’s free cash flow per share was -0.14.

Liquidity and Financial Risk




Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. FLXN has a current ratio of 12.90 compared to 4.60 for RIGL. This means that FLXN can more easily cover its most immediate liabilities over the next twelve months. FLXN’s debt-to-equity ratio is 0.92 versus a D/E of 0.00 for RIGL. FLXN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FLXN trades at a P/B of 4.68, compared to a P/B of 8.29, and a P/S of 70.75 for RIGL. 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. FLXN is currently priced at a -36.34% to its one-year price target of 38.44. Comparatively, RIGL is -36.17% relative to its price target of 5.75. This suggests that FLXN is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for FLXN and 1.80 for RIGL, which implies that analysts are more bullish on the outlook for RIGL.

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. FLXN has a beta of 1.09 and RIGL’s beta is 1.27. FLXN’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. FLXN has a short ratio of 3.83 compared to a short interest of 3.94 for RIGL. This implies that the market is currently less bearish on the outlook for FLXN.

Summary

Flexion Therapeutics, Inc. (NASDAQ:FLXN) beats Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) on a total of 8 of the 13 factors compared between the two stocks. FLXN generates a higher return on investment and higher liquidity. In terms of valuation, FLXN is the cheaper of the two stocks on book value and sales basis, FLXN is more undervalued relative to its price target. Finally, FLXN has better sentiment signals based on short interest.

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