Amneal Pharmaceuticals, Inc. (NYSE:AMRX) shares are down more than -74.21% this year and recently increased 0.87% or $0.03 to settle at $3.49. Gardner Denver Holdings, Inc. (NYSE:GDI), on the other hand, is up 50.32% year to date as of 09/12/2019. It currently trades at $30.74 and has returned 8.78% during the past week.
Amneal Pharmaceuticals, Inc. (NYSE:AMRX) and Gardner Denver Holdings, Inc. (NYSE:GDI) are the two most active stocks in the Drugs – Generic 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 AMRX to grow earnings at a 10.40% annual rate over the next 5 years. Comparatively, GDI is expected to grow at a 8.90% annual rate. All else equal, AMRX’s higher growth rate would imply a greater potential for capital appreciation.
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 19.01% for Gardner Denver Holdings, Inc. (GDI). AMRX’s ROI is -1.30% while GDI has a ROI of 7.90%. The interpretation is that GDI’s business generates a higher return on investment than AMRX’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. AMRX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.48. Comparatively, GDI’s free cash flow per share was +0.24. On a percent-of-sales basis, AMRX’s free cash flow was 8.63% while GDI converted 1.82% of its revenues into cash flow. This means that, for a given level of sales, AMRX is able to generate more free cash flow for investors.
Balance sheet risk is one of the biggest factors to consider before investing. AMRX has a current ratio of 2.20 compared to 2.50 for GDI. This means that GDI can more easily cover its most immediate liabilities over the next twelve months. AMRX’s debt-to-equity ratio is 5.88 versus a D/E of 0.91 for GDI. AMRX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
AMRX trades at a forward P/E of 4.69, a P/B of 0.97, and a P/S of 0.54, compared to a forward P/E of 17.44, a P/B of 3.50, and a P/S of 2.37 for GDI. AMRX is the cheaper of the two stocks on an earnings, book value and sales basis. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AMRX is currently priced at a -33.27% to its one-year price target of 5.23. Comparatively, GDI is -14.61% relative to its price target of 36.00. This suggests that AMRX is the better investment over the next year.
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. AMRX has a short ratio of 3.07 compared to a short interest of 5.57 for GDI. This implies that the market is currently less bearish on the outlook for AMRX.
Amneal Pharmaceuticals, Inc. (NYSE:AMRX) beats Gardner Denver Holdings, Inc. (NYSE:GDI) on a total of 9 of the 14 factors compared between the two stocks. AMRX is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, AMRX is the cheaper of the two stocks on an earnings, book value and sales basis, AMRX is more undervalued relative to its price target. Finally, AMRX has better sentiment signals based on short interest.