American Software (NASDAQ: AMSWA) and Varonis Systems (NASDAQ:VRNS) are both small-cap computer and technology companies, but which is the better stock? We will contrast the two companies based on the strength of their dividends, profitability, earnings, valuation, analyst recommendations, risk and institutional ownership.

Insider and Institutional Ownership

74.7% of American Software shares are held by institutional investors. Comparatively, 82.4% of Varonis Systems shares are held by institutional investors. 13.9% of American Software shares are held by company insiders. Comparatively, 19.5% of Varonis Systems shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

American Software pays an annual dividend of $0.44 per share and has a dividend yield of 3.7%. Varonis Systems does not pay a dividend. American Software pays out 84.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

This table compares American Software and Varonis Systems’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Software 14.81% 15.78% 11.15%
Varonis Systems -9.03% -20.94% -9.75%

Volatility & Risk

American Software has a beta of 0.78, suggesting that its stock price is 22% less volatile than the S&P 500. Comparatively, Varonis Systems has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500.

Earnings and Valuation

This table compares American Software and Varonis Systems’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
American Software $105.74 million 3.39 $12.37 million $0.52 23.17
Varonis Systems $185.90 million 6.64 -$13.29 million ($0.63) -71.19

American Software has higher revenue, but lower earnings than Varonis Systems. Varonis Systems is trading at a lower price-to-earnings ratio than American Software, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current recommendations and price targets for American Software and Varonis Systems, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Software 0 0 1 0 3.00
Varonis Systems 0 2 8 0 2.80

American Software currently has a consensus target price of $12.25, suggesting a potential upside of 1.66%. Varonis Systems has a consensus target price of $43.33, suggesting a potential downside of 3.38%. Given American Software’s stronger consensus rating and higher probable upside, research analysts clearly believe American Software is more favorable than Varonis Systems.

Summary

American Software beats Varonis Systems on 9 of the 15 factors compared between the two stocks.

About American Software

American Software, Inc. (American Software) develops, markets and supports a portfolio of software and services that delivers enterprise management, supply chain and retail planning solutions to the marketplace. The Company operates through three business segments: Supply Chain Management (SCM), Enterprise Resource Planning (ERP) and Information Technology (IT) Consulting. The SCM segment consists of Logility, Inc. and its subsidiary, Demand Management, Inc. (DMI), both of which provide supply chain and retail planning solutions to trading partners. The ERP segment consist of American Software ERP, which provides business software for manufacturers and distributors, and New Generation Computing, Inc. (NGC), which provides industry-specific business software to both retailers and manufacturers in the apparel, footwear, sewn products and furniture industries. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm.

About Varonis Systems

Varonis Systems, Inc. provides a solutions that protect data from insider threats and cyberattacks. The Company’s products include DatAdvantage, DataPrivilege, Interface Data Unit Classification Framework, Data Transport Engine, DatAnywhere and DatAnswers. Its platform allows enterprises to analyze, secure, manage and migrate volumes of unstructured data. It specializes in file and e-mail systems that store valuable spreadsheets, word processing documents, presentations, audio and video files, e-mails and text. Its Metadata Framework is a technology platform that extracts metadata from an enterprise’s information technology (IT) infrastructure. Data often includes an enterprise’s financial information, intellectual property, and confidential employee, customer or patient records. IT and business personnel deploy its software for a range of use cases, including data security, governance and compliance, user behavior analytics, archiving, search, and file synchronization and sharing.

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