Digi International (NASDAQ: DGII) and Communications Systems (NASDAQ:JCS) are both small-cap computer and technology companies, but which is the superior business? We will compare the two businesses based on the strength of their profitability, institutional ownership, earnings, valuation, dividends, analyst recommendations and risk.

Dividends

Communications Systems pays an annual dividend of $0.16 per share and has a dividend yield of 3.5%. Digi International does not pay a dividend. Communications Systems pays out -16.3% of its earnings in the form of a dividend.

Profitability

This table compares Digi International and Communications Systems’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Digi International 4.74% 3.17% 2.86%
Communications Systems -9.55% -14.44% -12.11%

Institutional & Insider Ownership

78.3% of Digi International shares are held by institutional investors. Comparatively, 31.8% of Communications Systems shares are held by institutional investors. 6.9% of Digi International shares are held by company insiders. Comparatively, 17.5% of Communications Systems shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Digi International and Communications Systems, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Digi International 0 0 4 0 3.00
Communications Systems 0 0 1 0 3.00

Digi International currently has a consensus price target of $15.33, suggesting a potential upside of 33.92%. Communications Systems has a consensus price target of $6.00, suggesting a potential upside of 32.16%. Given Digi International’s higher possible upside, equities analysts plainly believe Digi International is more favorable than Communications Systems.

Risk and Volatility

Digi International has a beta of 1.49, meaning that its share price is 49% more volatile than the S&P 500. Comparatively, Communications Systems has a beta of 1.06, meaning that its share price is 6% more volatile than the S&P 500.

Earnings & Valuation

This table compares Digi International and Communications Systems’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Digi International $186.98 million 1.63 $16.27 million $0.33 34.70
Communications Systems $91.24 million 0.45 -$1.87 million ($0.98) -4.63

Digi International has higher revenue and earnings than Communications Systems. Communications Systems is trading at a lower price-to-earnings ratio than Digi International, indicating that it is currently the more affordable of the two stocks.

Summary

Digi International beats Communications Systems on 11 of the 14 factors compared between the two stocks.

About Digi International

Digi International Inc. is a provider of mission and business-critical machine-to-machine (M2M) and Internet-of-Things (IoT) connectivity products and services. The Company creates connected products and deploys and manages critical communications infrastructures in a range of environments. It offers four categories of hardware products: cellular routers and gateways, radio frequency (RF), embedded and network products. The Company’s cellular product category includes its cellular routers and all gateways. The Company’s RF product category includes its XBee modules, as well as other RF Solutions. Its embedded product category includes Digi Connect and Rabbit embedded systems on module and single board computers. Its network product category includes console and serial servers and universal serial bus (USB) connected products. The Company’s service offerings include wireless design services, Digi Device Cloud (which includes Digi Remote Manager) and enterprise support services.

About Communications Systems

Communications Systems, Inc. (CSI) operates directly and through its subsidiaries located in the United States, Costa Rica and the United Kingdom. The Company operates through three segments: Suttle, Transition Networks and JDL Technologies (JDL). The Company provides physical connectivity infrastructure products and services for global deployments of broadband networks. The Company is principally engaged through its subsidiary and business unit, Suttle, Inc., in the manufacture and sale of connectivity infrastructure products for broadband and voice communications, and through its another subsidiary and business unit, Transition Networks, Inc., in the manufacture and sale of core media conversion products for broadband networks. Through its JDL Technologies, Inc. subsidiary and business unit, CSI provides information technology (IT) solutions, including network design, computer infrastructure installations, IT service management, network security and network operation services.

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