Critical Analysis: ScanSource (SCSC) & PC Connection (CNXN)

ScanSource (NASDAQ: SCSC) and PC Connection (NASDAQ:CNXN) are both small-cap industrial products companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, earnings, institutional ownership, dividends, valuation and risk.

Profitability

This table compares ScanSource and PC Connection’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
ScanSource 1.94% 8.76% 4.15%
PC Connection 1.63% 11.00% 7.06%

Analyst Recommendations

This is a summary of recent recommendations for ScanSource and PC Connection, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
ScanSource 0 2 0 0 2.00
PC Connection 0 0 1 0 3.00

ScanSource currently has a consensus target price of $48.50, suggesting a potential upside of 13.19%. PC Connection has a consensus target price of $33.00, suggesting a potential upside of 24.39%. Given PC Connection’s stronger consensus rating and higher probable upside, analysts clearly believe PC Connection is more favorable than ScanSource.

Valuation and Earnings

This table compares ScanSource and PC Connection’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
ScanSource $3.57 billion 0.31 $69.24 million $2.72 15.75
PC Connection $2.69 billion 0.26 $48.11 million $1.77 14.99

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

Volatility & Risk

ScanSource has a beta of 1.11, indicating that its stock price is 11% more volatile than the S&P 500. Comparatively, PC Connection has a beta of 1.6, indicating that its stock price is 60% more volatile than the S&P 500.

Institutional and Insider Ownership

94.2% of ScanSource shares are held by institutional investors. Comparatively, 41.5% of PC Connection shares are held by institutional investors. 2.4% of ScanSource shares are held by insiders. Comparatively, 57.3% of PC Connection shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

ScanSource Company Profile

ScanSource, Inc. is a provider of technology products and solutions. The Company and its subsidiaries provide solutions for technology manufacturers and sell to resellers in technology markets, such as point-of-sale (POS) and Barcode, Networking and Security, Communications and Emerging Technologies. It operates through two segments: Worldwide Barcode & Security and Worldwide Communications & Services. The Barcode & Security distribution segment focuses on automatic identification and data capture (AIDC), POS, electronic physical security and three dimensional (3D) printing technologies. The Communications & Services distribution segment focuses on communications technologies and services. As of June 30, 2016, the Company marketed over 100,000 products from approximately 400 hardware and software vendors to approximately 35,000 reseller customers from distribution centers in Mississippi, Virginia, Florida, Mexico, Colombia, Brazil, Belgium, France, Germany and the United Kingdom.

PC Connection Company Profile

PC Connection, Inc. is a provider of a range of information technology (IT) solutions. The Company conducts its business operations through three business segments: small- to medium-sized businesses (SMB), Large Account and Public Sector. The Company enables customers to design, enable, manage and service their IT environments. The Company’s IT products include computer systems, software and peripheral equipment, networking communications, and other products and accessories that the Company purchases from manufacturers, distributors and other suppliers. The Company also offers services involving design, configuration and implementation of IT solutions. The Company markets its products and services through its Websites, including www.connection.com, www.connection.com/enterprise, www.connection.com/publicsector, and www.macconnection.com. It uses a combination of outbound telemarketing, including some on-site sales solicitation by business development managers.

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