TherapeuticsMD, Inc. (NASDAQ:TXMD) shares are up more than 1.91% this year and recently decreased -2.72% or -$0.16 to settle at $5.72. Heron Therapeutics, Inc. (NASDAQ:HRTX), on the other hand, is up 18.32% year to date as of 12/05/2017. It currently trades at $15.48 and has returned -7.74% during the past week.
TherapeuticsMD, Inc. (NASDAQ:TXMD) and Heron Therapeutics, Inc. (NASDAQ:HRTX) are the two most active stocks in the Drug Manufacturers – Major 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect TXMD to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, HRTX is expected to grow at a 34.85% annual rate. All else equal, HRTX’s higher growth rate would imply a greater potential for capital appreciation.
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. TXMD’s ROI is -70.80% while HRTX has a ROI of -540.90%. The interpretation is that TXMD’s business generates a higher return on investment than HRTX’s.
The value of a stock is simply the present value of its future free cash flows. TXMD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.09. Comparatively, HRTX’s free cash flow per share was -0.75. On a percent-of-sales basis, TXMD’s free cash flow was -0.1% while HRTX converted -3.19% of its revenues into cash flow. This means that, for a given level of sales, TXMD 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. TXMD has a current ratio of 14.40 compared to 2.10 for HRTX. This means that TXMD can more easily cover its most immediate liabilities over the next twelve months. TXMD’s debt-to-equity ratio is 0.00 versus a D/E of 0.71 for HRTX. HRTX is therefore the more solvent of the two companies, and has lower financial risk.
TXMD trades at a P/B of 8.17, and a P/S of 71.70, compared to a P/B of 20.95, and a P/S of 36.98 for HRTX. TXMD is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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. TXMD is currently priced at a -58.64% to its one-year price target of 13.83. Comparatively, HRTX is -50.06% relative to its price target of 31.00. This suggests that TXMD 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 1.90 for TXMD and 1.70 for HRTX, which implies that analysts are more bullish on the outlook for TXMD.
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. TXMD has a beta of 0.99 and HRTX’s beta is 2.09. TXMD’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. TXMD has a short ratio of 17.21 compared to a short interest of 12.07 for HRTX. This implies that the market is currently less bearish on the outlook for HRTX.
TherapeuticsMD, Inc. (NASDAQ:TXMD) beats Heron Therapeutics, Inc. (NASDAQ:HRTX) on a total of 8 of the 14 factors compared between the two stocks. TXMD generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. TXMD is more undervalued relative to its price target. Finally, DRRX has better sentiment signals based on short interest.