Critical Review: Communications Systems (JCS) versus QUALCOMM (QCOM)

Communications Systems (NASDAQ: JCS) and QUALCOMM (NASDAQ:QCOM) are both technology companies, but which is the superior stock? We will contrast the two businesses based on the strength of their analyst recommendations, profitability, institutional ownership, risk, dividends, valuation and earnings.

Risk & Volatility

Communications Systems has a beta of 0.99, suggesting that its stock price is 1% less volatile than the S&P 500. Comparatively, QUALCOMM has a beta of 1.39, suggesting that its stock price is 39% more volatile than the S&P 500.

Profitability

This table compares Communications Systems and QUALCOMM’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Communications Systems -22.15% -33.92% -28.14%
QUALCOMM 11.06% 18.08% 9.45%

Institutional and Insider Ownership

32.1% of Communications Systems shares are owned by institutional investors. Comparatively, 76.5% of QUALCOMM shares are owned by institutional investors. 17.5% of Communications Systems shares are owned by company insiders. Comparatively, 0.2% of QUALCOMM shares are owned by company 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

Communications Systems pays an annual dividend of $0.16 per share and has a dividend yield of 4.4%. QUALCOMM pays an annual dividend of $2.28 per share and has a dividend yield of 3.5%. Communications Systems pays out -11.9% of its earnings in the form of a dividend. QUALCOMM pays out 138.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. QUALCOMM has increased its dividend for 6 consecutive years. Communications Systems is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings & Valuation

This table compares Communications Systems and QUALCOMM’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Communications Systems $99.35 million 0.33 -$8.11 million ($1.34) -2.69
QUALCOMM $22.29 billion 4.28 $2.47 billion $1.65 39.23

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

Analyst Recommendations

This is a breakdown of current ratings and price targets for Communications Systems and QUALCOMM, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Communications Systems 0 0 1 0 3.00
QUALCOMM 1 17 9 0 2.30

Communications Systems presently has a consensus price target of $6.00, suggesting a potential upside of 66.20%. QUALCOMM has a consensus price target of $66.50, suggesting a potential upside of 2.73%. Given Communications Systems’ stronger consensus rating and higher probable upside, analysts plainly believe Communications Systems is more favorable than QUALCOMM.

Summary

QUALCOMM beats Communications Systems on 12 of the 17 factors compared between the two stocks.

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.

About QUALCOMM

QUALCOMM Incorporated is engaged in the development and commercialization of a digital communication technology called code division multiple access (CDMA). The Company is engaged in the development and commercialization of the orthogonal frequency division multiple access (OFDMA) family of technologies, including long-term evolution (LTE), which is an Orthogonal Frequency Division Multiplexing (OFDM)-based standard that uses OFDMA and single-carrier Frequency Division Multiple Access (FDMA), for cellular wireless communication applications. The Company’s segments include QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI (Qualcomm Strategic Initiatives). The Company also develops and commercializes a range of other technologies used in handsets and tablets that contribute to end user demand. The Company’s products principally consist of integrated circuits (chips or chipsets) and system software used in mobile devices and in wireless networks.

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