Box, Inc. (NYSE:BOX) shares are up more than 4.50% this year and recently decreased -0.34% or -$0.06 to settle at $17.64. Aerie Pharmaceuticals, Inc. (NASDAQ:AERI), on the other hand, is down -35.98% year to date as of 09/12/2019. It currently trades at $23.11 and has returned 25.53% during the past week.
Box, Inc. (NYSE:BOX) and Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) are the two most active stocks in the Application Software 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BOX to grow earnings at a 8.00% annual rate over the next 5 years.
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. BOX’s ROI is -93.30% while AERI has a ROI of -92.10%. The interpretation is that AERI’s business generates a higher return on investment than BOX’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. BOX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.04. Comparatively, AERI’s free cash flow per share was -0.80. On a percent-of-sales basis, BOX’s free cash flow was -0% while AERI converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, BOX is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. BOX has a current ratio of 0.80 compared to 2.50 for AERI. This means that AERI can more easily cover its most immediate liabilities over the next twelve months. BOX’s debt-to-equity ratio is 4.11 versus a D/E of 0.00 for AERI. BOX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BOX trades at a forward P/E of 79.46, a P/B of 84.00, and a P/S of 3.88, compared to a P/B of 6.74, and a P/S of 21.46 for AERI. BOX 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
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. BOX is currently priced at a 3.16% to its one-year price target of 17.10. Comparatively, AERI is -63.38% relative to its price target of 63.11. This suggests that AERI is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. BOX has a beta of 1.41 and AERI’s beta is 0.52. AERI’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. BOX has a short ratio of 2.75 compared to a short interest of 8.04 for AERI. This implies that the market is currently less bearish on the outlook for BOX.
Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) beats Box, Inc. (NYSE:BOX) on a total of 8 of the 14 factors compared between the two stocks. AERI is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, AERI is the cheaper of the two stocks on an earnings and book value, AERI is more undervalued relative to its price target.