Investors with an interest in Medical - Biomedical and Genetics stocks have likely encountered both Royalty Pharma (RPRX) and Acadia Pharmaceuticals (ACAD). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Royalty Pharma and Acadia Pharmaceuticals are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that RPRX has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
RPRX currently has a forward P/E ratio of 11.55, while ACAD has a forward P/E of 69.85. We also note that RPRX has a PEG ratio of 1.60. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ACAD currently has a PEG ratio of 18.73.
Another notable valuation metric for RPRX is its P/B ratio of 3.38. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ACAD has a P/B of 3.57.
These metrics, and several others, help RPRX earn a Value grade of B, while ACAD has been given a Value grade of C.
RPRX has seen stronger estimate revision activity and sports more attractive valuation metrics than ACAD, so it seems like value investors will conclude that RPRX is the superior option right now.
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Royalty Pharma PLC (RPRX): Free Stock Analysis Report
ACADIA Pharmaceuticals Inc. (ACAD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).