Bristol-Myers Squibb Company (NYSE:BMY) shares are down more than -0.83% this year and recently decreased -3.89% or -$2.46 to settle at $60.77. iQIYI, Inc. (NASDAQ:IQ), on the other hand, is up 58.20% year to date as of 10/10/2018. It currently trades at $24.60 and has returned -8.52% during the past week.
Bristol-Myers Squibb Company (NYSE:BMY) and iQIYI, Inc. (NASDAQ:IQ) are the two most active stocks in the Drug Manufacturers – Major industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BMY to grow earnings at a 10.97% annual rate over the next 5 years. Comparatively, IQ is expected to grow at a 49.00% annual rate. All else equal, IQ’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. Bristol-Myers Squibb Company (BMY) has an EBITDA margin of 22.51%. This suggests that BMY underlying business is more profitable BMY’s ROI is 20.20% while IQ has a ROI of 28.80%. The interpretation is that IQ’s business generates a higher return on investment than BMY’s.Cash Flow
Cash is king when it comes to investing. On a percent-of-sales basis, BMY’s free cash flow was 1.02% while IQ converted 0% of its revenues into cash flow. This means that, for a given level of sales, BMY 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. BMY has a current ratio of 1.40 compared to 1.30 for IQ. This means that BMY can more easily cover its most immediate liabilities over the next twelve months. BMY’s debt-to-equity ratio is 0.60 versus a D/E of 0.04 for IQ. BMY is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BMY trades at a forward P/E of 15.57, a P/B of 8.06, and a P/S of 4.59, compared to a P/B of 4.21, and a P/S of 5.85 for IQ. BMY is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. BMY is currently priced at a 0.45% to its one-year price target of 60.50. Comparatively, IQ is -26.48% relative to its price target of 33.46. This suggests that IQ is the better investment over the next year.
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. BMY has a short ratio of 2.68 compared to a short interest of 2.97 for IQ. This implies that the market is currently less bearish on the outlook for BMY.Summary
iQIYI, Inc. (NASDAQ:IQ) beats Bristol-Myers Squibb Company (NYSE:BMY) on a total of 8 of the 14 factors compared between the two stocks. IQ is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, IQ is the cheaper of the two stocks on an earnings and book value, IQ is more undervalued relative to its price target. Finally, FDC has better sentiment signals based on short interest.