Financial Analysis: West (WSTC) & Digi International (DGII)

West (NASDAQ: WSTC) and Digi International (NASDAQ:DGII) are both small-cap communications & networking – nec companies, but which is the superior stock? We will contrast the two businesses based on the strength of their dividends, analyst recommendations, profitability, risk, earnings, valuation and institutional ownership.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for West and Digi International, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
West 0 5 0 0 2.00
Digi International 0 1 3 0 2.75

West presently has a consensus price target of $24.50, indicating a potential upside of 4.26%. Digi International has a consensus price target of $14.50, indicating a potential upside of 48.72%. Given Digi International’s stronger consensus rating and higher probable upside, analysts plainly believe Digi International is more favorable than West.

Valuation and Earnings

This table compares West and Digi International’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
West N/A N/A N/A $2.52 9.33
Digi International $181.63 million 1.42 $9.36 million $0.35 27.86

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

Institutional and Insider Ownership

67.4% of West shares are owned by institutional investors. Comparatively, 77.6% of Digi International shares are owned by institutional investors. 4.6% of West shares are owned by insiders. Comparatively, 6.9% of Digi International shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Dividends

West pays an annual dividend of $0.45 per share and has a dividend yield of 1.9%. Digi International does not pay a dividend. West pays out 17.9% of its earnings in the form of a dividend.

Profitability

This table compares West and Digi International’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
West 7.79% N/A 5.18%
Digi International 5.16% 3.24% 2.95%

Summary

Digi International beats West on 8 of the 12 factors compared between the two stocks.

West Company Profile

West Corporation is a provider of communication and network infrastructure services. The Company helps its clients communicate, collaborate and connect with their audiences through a portfolio of solutions that include unified communications services, safety services, and interactive services, such as automated notifications, specialized agent services and telecom services. The Company’s segments include Unified Communications Services, which includes collaboration services, Unified Communications as a Service (UCaaS) and telecom services; Safety Services, which includes carrier services, government solutions and advanced services; Interactive Services, including outbound (proactive notifications-voice, text/short messaging service (SMS) and chat), inbound speech solutions (interactive voice response or IVR), Web, mobile and professional services, and Specialized Agent Services, which includes healthcare advocacy services, cost management services and revenue generation.

Digi International Company Profile

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.

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