Earnings

Which Market Offer More Value? – Flex Ltd. (FLEX), Intercept Pharmaceuticals, Inc. (ICPT)

The shares of Flex Ltd. have decreased by more than -6.23% this year alone. The shares recently went up by 0.78% or $0.13 and now trades at $16.87. The shares of Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT), has jumped by 25.08% year to date as of 04/13/2018. The shares currently trade at $73.07 and have been able to report a change of 2.05% over the past one week.

The stock of Flex Ltd. and Intercept Pharmaceuticals, Inc. were two of the most active stocks on Friday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 16.43% versus -8.89%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that FLEX will grow it’s earning at a 16.43% annual rate in the next 5 years. This is in contrast to ICPT which will have a positive growth at a -8.89% annual rate. This means that the higher growth rate of FLEX implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. FLEX has an EBITDA margin of 12.74%, this implies that the underlying business of FLEX is more profitable. The ROI of FLEX is 7.50% while that of ICPT is -90.20%. These figures suggest that FLEX ventures generate a higher ROI than that of ICPT.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, FLEX’s free cash flow per share is a negative -0.07, while that of ICPT is also a negative -0.07.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for FLEX is 1.20 and that of ICPT is 4.30. This implies that it is easier for FLEX to cover its immediate obligations over the next 12 months than ICPT. The debt ratio of FLEX is 0.99 compared to 21.69 for ICPT. ICPT can be able to settle its long-term debts and thus is a lower financial risk than FLEX.

Valuation

FLEX currently trades at a forward P/E of 11.93, a P/B of 2.99, and a P/S of 0.35 while ICPT trades at a P/B of 112.42, and a P/S of 15.90. This means that looking at the earnings, book values and sales basis, FLEX is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of FLEX is currently at a -20.54% to its one-year price target of 21.23. Looking at its rival pricing, ICPT is at a -33.76% relative to its price target of 110.31.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), FLEX is given a 1.70 while 2.50 placed for ICPT. This means that analysts are more bullish on the outlook for ICPT stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for FLEX is 3.60 while that of ICPT is just 7.56. This means that analysts are more bullish on the forecast for FLEX stock.

Conclusion

The stock of Intercept Pharmaceuticals, Inc. defeats that of Flex Ltd. when the two are compared, with ICPT taking 4 out of the total factors that were been considered. ICPT happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, ICPT is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ICPT is better on when it is viewed on short interest.

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