Comparing MannKind Corporation (MNKD) and Accuray Incorporated (ARAY)

MannKind Corporation (NASDAQ:MNKD) shares are up more than 34.91% this year and recently decreased -0.69% or -$0.01 to settle at $1.43. Accuray Incorporated (NASDAQ:ARAY), on the other hand, is down -10.85% year to date as of 09/12/2019. It currently trades at $3.04 and has returned 14.29% during the past week.

MannKind Corporation (NASDAQ:MNKD) and Accuray Incorporated (NASDAQ:ARAY) are the two most active stocks in the Biotechnology industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect MNKD to grow earnings at a 26.80% annual rate over the next 5 years.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. MNKD’s ROI is 106.90% while ARAY has a ROI of -0.70%. The interpretation is that MNKD’s business generates a higher return on investment than ARAY’s.

Cash Flow

Cash is king when it comes to investing. MNKD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.11. Comparatively, ARAY’s free cash flow per share was +0.09. On a percent-of-sales basis, MNKD’s free cash flow was -0.07% while ARAY converted 0% of its revenues into cash flow. This means that, for a given level of sales, ARAY 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. MNKD has a current ratio of 0.60 compared to 1.80 for ARAY. This means that ARAY can more easily cover its most immediate liabilities over the next twelve months.

Valuation

MNKD trades at a P/S of 4.91, compared to a P/B of 5.33, and a P/S of 0.64 for ARAY. MNKD is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MNKD is currently priced at a -52.33% to its one-year price target of 3.00. Comparatively, ARAY is -56.57% relative to its price target of 7.00. This suggests that ARAY is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MNKD has a beta of 2.32 and ARAY’s beta is 1.94. ARAY’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. MNKD has a short ratio of 17.99 compared to a short interest of 4.58 for ARAY. This implies that the market is currently less bearish on the outlook for ARAY.

Summary

Accuray Incorporated (NASDAQ:ARAY) beats MannKind Corporation (NASDAQ:MNKD) on a total of 8 of the 14 factors compared between the two stocks. ARAY is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. ARAY is more undervalued relative to its price target. Finally, ARAY has better sentiment signals based on short interest.