Critical Contrast: KLA (NASDAQ:KLAC) & Disco (OTCMKTS:DSCSY)

Disco (OTCMKTS:DSCSY) and KLA (NASDAQ:KLAC) are both large-cap technology companies, but which is the better investment? We will compare the two businesses based on the strength of their analyst recommendations, valuation, earnings, profitability, institutional ownership, risk and dividends.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Disco and KLA, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Disco	0	1	1	0	2.50
KLA	0	9	19	1	2.72

KLA has a consensus target price of $222.22, suggesting a potential upside of 18.00%. Given KLA’s stronger consensus rating and higher possible upside, analysts plainly believe KLA is more favorable than Disco.

Profitability

This table compares Disco and KLA’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Disco	31.65%	26.03%	20.56%
KLA	35.57%	87.66%	29.23%

Institutional & Insider Ownership

0.0% of Disco shares are owned by institutional investors. Comparatively, 86.7% of KLA shares are owned by institutional investors. 91.5% of KLA shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Valuation & Earnings

This table compares Disco and KLA”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Disco	$2.90 billion	13.22	$894.45 million	$0.87	40.66
KLA	$13.58 billion	18.12	$4.83 billion	$3.67	51.31

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

Volatility and Risk

Disco has a beta of 1.54, suggesting that its share price is 54% more volatile than the S&P 500. Comparatively, KLA has a beta of 1.45, suggesting that its share price is 45% more volatile than the S&P 500.

Dividends

Disco pays an annual dividend of $0.28 per share and has a dividend yield of 0.8%. KLA pays an annual dividend of $0.92 per share and has a dividend yield of 0.5%. Disco pays out 32.2% of its earnings in the form of a dividend. KLA pays out 25.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. KLA has increased its dividend for 16 consecutive years.

Summary

KLA beats Disco on 16 of the 18 factors compared between the two stocks.

About Disco

Disco Corporation manufactures and sells precision cutting, grinding, and polishing machines in Japan and internationally. Its precision machines include dicing saws, laser saws, grinders, polishers, wafer mounters, die separators, surface planers, and waterjet saws. The company also offers precision processing tools, such as dicing blades, grinding wheels, and dry polishing wheels; and other products, such as accessory equipment. In addition, it is involved in the disassembly and recycling of precision cutting, grinding, and polishing machines, as well as provides training services for the maintenance and operation of its products. Further, the company leases precision machines; and purchases and sells used machines. Additionally, it manufactures precision diamond abrasive tools, as well as offers chargeable processing services. The company was founded in 1937 and is headquartered in Tokyo, Japan.

About KLA

KLA Corporation, together with its subsidiaries, engages in the design, manufacture, and marketing of process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB and Component Inspection. The company offers inspection and review tools to identify, locate, characterize, review, and analyze defects on various surfaces of patterned and unpatterned wafers; metrology systems that are used to measure pattern dimensions, film thickness, film stress, layer-to-layer alignment, pattern placement, surface topography, and electro-optical properties for wafers; chemical process control equipment; wired and wireless sensor wafers and reticles; wafer defect inspection, review, and metrology systems; reticle inspection and metrology systems; and semiconductor software solutions that provide run-time process control, defect excursion identification, process corrections, and defect classification to accelerate yield learning rates and reduce production risk. It also provides etch, plasma dicing, deposition, and other wafer processing technologies and solutions for the semiconductor and microelectronics industry. In addition, the company offers direct imaging, inspection, optical shaping, inkjet and additive printing, UV laser drilling, and computer-aided manufacturing and engineering solutions for the PCB market; inspection and electrical testing systems to identify and classify defects, as well as systems to repair defects for the display market; and inspection and metrology systems for quality control and yield improvement in advanced and traditional semiconductor packaging markets. The company was formerly known as KLA-Tencor Corporation and changed its name to KLA Corporation in July 2019. KLA Corporation was incorporated in 1975 and is headquartered in Milpitas, California.