Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) shares are up more than 293.33% this year and recently decreased -5.57% or -$0.23 to settle at $3.90. Akorn, Inc. (NASDAQ:AKRX), on the other hand, is up 50.25% year to date as of 12/05/2017. It currently trades at $32.74 and has returned 1.08% during the past week.
Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) and Akorn, Inc. (NASDAQ:AKRX) are the two most active stocks in the Drugs – Generic industry based on today’s 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Comparatively, AKRX is expected to grow at a -7.80% annual rate. All else equal, CPRX’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 EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 22.08% for Akorn, Inc. (AKRX).
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CPRX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, AKRX’s free cash flow per share was +0.18.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. CPRX has a current ratio of 12.60 compared to 4.20 for AKRX. This means that CPRX can more easily cover its most immediate liabilities over the next twelve months. CPRX’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for AKRX. CPRX is therefore the more solvent of the two companies, and has lower financial risk.
CPRX trades at a P/B of 11.16, compared to a forward P/E of 27.91, a P/B of 4.62, and a P/S of 4.37 for AKRX. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CPRX is currently priced at a -31.46% to its one-year price target of 5.69. Comparatively, AKRX is 5.14% relative to its price target of 31.14. This suggests that CPRX 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 2.00 for CPRX and 3.00 for AKRX, which implies that analysts are more bullish on the outlook for AKRX.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. CPRX has a beta of 1.59 and AKRX’s beta is 1.33. AKRX’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. CPRX has a short ratio of 3.07 compared to a short interest of 11.23 for AKRX. This implies that the market is currently less bearish on the outlook for CPRX.
Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) beats Akorn, Inc. (NASDAQ:AKRX) on a total of 7 of the 13 factors compared between the two stocks. CPRX is growing fastly and higher liquidity. In terms of valuation, CPRX is the cheaper of the two stocks on an earnings and sales basis, CPRX is more undervalued relative to its price target. Finally, CPRX has better sentiment signals based on short interest.