Mylan N.V. (NASDAQ:MYL) shares are down more than -1.94% this year and recently decreased -1.31% or -$0.49 to settle at $36.92. Neurocrine Biosciences, Inc. (NASDAQ:NBIX), on the other hand, is up 83.41% year to date as of 12/05/2017. It currently trades at $69.08 and has returned 4.09% during the past week.
Mylan N.V. (NASDAQ:MYL) and Neurocrine Biosciences, Inc. (NASDAQ:NBIX) are the two most active stocks in the Drugs – Generic industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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 MYL to grow earnings at a 4.20% annual rate over the next 5 years. Comparatively, NBIX is expected to grow at a 40.10% annual rate. All else equal, NBIX’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. Mylan N.V. (MYL) has an EBITDA margin of 24.25%. This suggests that MYL underlying business is more profitable MYL’s ROI is 3.20% while NBIX has a ROI of -46.80%. The interpretation is that MYL’s business generates a higher return on investment than NBIX’s.
The value of a stock is simply the present value of its future free cash flows. MYL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.93. Comparatively, NBIX’s free cash flow per share was -0.14. On a percent-of-sales basis, MYL’s free cash flow was 4.5% while NBIX converted -0.08% of its revenues into cash flow. This means that, for a given level of sales, MYL 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. MYL has a current ratio of 1.50 compared to 14.40 for NBIX. This means that NBIX can more easily cover its most immediate liabilities over the next twelve months. MYL’s debt-to-equity ratio is 1.11 versus a D/E of 1.05 for NBIX. MYL is therefore the more solvent of the two companies, and has lower financial risk.
MYL trades at a forward P/E of 6.97, a P/B of 1.51, and a P/S of 1.70, compared to a P/B of 18.06, and a P/S of 93.43 for NBIX. 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. MYL is currently priced at a -13.82% to its one-year price target of 42.84. Comparatively, NBIX is -22.25% relative to its price target of 88.85. This suggests that NBIX 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 2.20 for MYL and 1.60 for NBIX, which implies that analysts are more bullish on the outlook for MYL.
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. MYL has a beta of 1.39 and NBIX’s beta is 0.33. NBIX’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. MYL has a short ratio of 3.93 compared to a short interest of 9.54 for NBIX. This implies that the market is currently less bearish on the outlook for MYL.
Neurocrine Biosciences, Inc. (NASDAQ:NBIX) beats Mylan N.V. (NASDAQ:MYL) on a total of 7 of the 14 factors compared between the two stocks. NBIX is more profitable, higher liquidity and has lower financial risk. NBIX is more undervalued relative to its price target. Finally, CPRX has better sentiment signals based on short interest.