Better Buy: Opko Health, Inc. vs. Qiagen

By Markets Fool.com

Image source: Getty Images.

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Shares of bothQiagen andOpko Health, Inc. are trading at relative discounts to prices seen not long ago, and investors are wondering which is a better buy. However, diagnostics operations and depressed stocks are about all these two have in common.

Let's take a closer look at the pair and see which comes out ahead.

Stock performance

Highly diversified Opkohas a broad array of businesses, but it has yet to produce a profit. Billionaire founder, CEO, and chairman Phillip Frost's confidence in Opko's potential is clear. As of March 17, he owned over a third of the company's outstanding shares. Wall Street appears to disagree with Frost, pounding Opko stock about 42% lower over the past year. Meanwhile, the CEO continues scooping up more of the company's stock.

By contrast, Qiagenis focused on the global diagnostics industry and has been consistently profitable for years. Although registered in the Netherlands, the company records sales in U.S. dollars, and its shares trade directly on the Nasdaq exchange without ADR fees. Post-Brexit euro weakness could give Qiagen a little boost in the form of reduced operating costs, but its stock has lost about 20% year to date.

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Valuation

Qiagen's bottom line has bounced around quite a bit over the past decade and hasn't passed the high-water mark of $0.64 per share reported in 2009. Despite the stagnation, the stock is trading at about 43 times trailing earnings and 20 times this year's expected EPS.

When it comes to Opko, which has no earnings to report, we'll have to look at the price-to-sales ratio. Following its acquisition of Bio-Reference Laboratories last August,Opko's total revenue of just $30 million in Q1 2015 jumped to $291 million during the same period this year.Despite the pop in revenue, Opko is trading at about 4.3 times this year's sales estimates, which is significantly higher than Qiagen's price of about 3.7 times forward sales.

Growth drivers

One reason investors are paying a premium for Opko is the recent FDA approval of Rayaldee for treatment of roughly 9 million U.S. patients with secondary hyperparathyroidism caused by mid-stage kidney disorders. These patients are often treated with vitamin D supplements, and Rayaldee is basically a form of vitamin D in an extended-release capsule.

Image source: Opko Health, Inc.

Opko pegs the drug's potential market at about $12 billion, but annual sales estimates of about $500 million are much easier to swallow.While Rayaldeehas an advantage over present therapies, we'll have to wait and see what price Opko intends to charge for the drug and how end payers react.

Opko also has an extended-release human growth hormone, developed in partnership with Pfizer,in a phase 3 trial.The treatment could add to the company's sales as soon as next year.

Developed in partnership with Tesaro, post-chemo anti-nausea drug Varubi isn't exactly taking flight following its approval last year. First-quarter sales of less than $200,000 from Tesaro weren't encouraging, but an intravenous formulation of the drug, currently under review at the FDA, could perform better if approved.

Qiagen, meanwhile, derives less than half its total sales from the U.S.,but pressure on its American HPV testing revenue is dragging the company's top line down. To offset the loss and return to growth, Qiagen is hoping for strong uptake of its GeneReader system from laboratories around the globe. The company is offering a unique price-per-insight model that smaller labs should appreciate.

First-quarter sales of its tuberculosis test, QuantiFERON-TB, rose 25%, but an overall first-quarter drop of 1% in molecular diagnostics sales as a whole over Q1 2015 isn't encouraging. The segment is responsible for nearly half the company's net sales.

Image source: Qiagen.

One bright spot is sales to drugmakers. Although Qiagen's pharma segment comprises just one-fifth of overall sales, its 5% rise in the first quarter over Q1 2015 is somewhat encouraging.

And the winner is...

Qiagen just doesn't seem to have any upside, given the stock's presently high valuation. Without a dividend, buying now could result in long-term losses if its sales continue to slide or stagnate.

I'm generally not a fan of companies that haven't turned the profitability corner, even if they're largely controlled by previously successful billionaires. However, Opko has significantly slowed its losses recently, and with a bit of luck from multiple growth-drivers, it could offer some upside. This is why I'm calling Opko Health the better buy.

The article Better Buy: Opko Health, Inc. vs. Qiagen originally appeared on Fool.com.

Cory Renauer has no position in any stocks mentioned. You can follow Cory on Twitter @TMFang4apples or connect with him on LinkedIn for more healthcare industry insight. The Motley Fool recommends Qiagen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.