Critical Analysis: Methode Electronics (NYSE:MEI) & Deswell Industries (NASDAQ:DSWL)

Methode Electronics (NYSE:MEI) and Deswell Industries (NASDAQ:DSWL) are both small-cap technology companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, dividends, institutional ownership, risk, valuation, analyst recommendations and earnings.

Dividends

Methode Electronics pays an annual dividend of $0.20 per share and has a dividend yield of 1.5%. Deswell Industries pays an annual dividend of $0.20 per share and has a dividend yield of 6.5%. Methode Electronics pays out -19.2% of its earnings in the form of a dividend. Deswell Industries pays out 41.7% 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.

Valuation & Earnings

This table compares Methode Electronics and Deswell Industries”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Methode Electronics	$1.02 billion	0.47	-$35.70 million	($1.04)	-13.06
Deswell Industries	$61.33 million	0.80	$10.63 million	$0.48	6.46

Deswell Industries has lower revenue, but higher earnings than Methode Electronics. Methode Electronics is trading at a lower price-to-earnings ratio than Deswell Industries, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Methode Electronics and Deswell Industries, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Methode Electronics	1	3	2	0	2.17
Deswell Industries	0	0	1	0	3.00

Methode Electronics presently has a consensus price target of $22.00, indicating a potential upside of 61.92%. Given Methode Electronics’ higher possible upside, research analysts plainly believe Methode Electronics is more favorable than Deswell Industries.

Profitability

This table compares Methode Electronics and Deswell Industries’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Methode Electronics	-3.52%	-5.63%	-2.94%
Deswell Industries	N/A	N/A	N/A

Volatility & Risk

Methode Electronics has a beta of 1.54, meaning that its stock price is 54% more volatile than the S&P 500. Comparatively, Deswell Industries has a beta of 0.62, meaning that its stock price is 38% less volatile than the S&P 500.

Institutional and Insider Ownership

95.5% of Methode Electronics shares are held by institutional investors. 1.9% of Methode Electronics shares are held by insiders. Comparatively, 39.0% of Deswell Industries shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

Deswell Industries beats Methode Electronics on 10 of the 16 factors compared between the two stocks.

About Methode Electronics

Methode Electronics, Inc. designs, engineers, and produces mechatronic products worldwide. It operates through four segments: Automotive, Industrial, Interface, and Medical. The Automotive segment supplies electronic and electro-mechanical devices, and related products to automobile original equipment manufacturers directly or through their tiered suppliers. Its products include integrated center consoles, hidden and ergonomic switches, transmission lead-frames, complex insert molded solutions, LED-based lighting solutions, and sensors, which incorporate magneto-elastic sensing, eddy current, or other sensing technologies that monitor the operation or status of a component or system. The Industrial segment manufactures external lighting solutions comprising driving, work, and signal lights; industrial safety radio remote controls; braided flexible cables; current-carrying laminated and powder-coated busbars; high-voltage high current connector and contracts; custom power-product assemblies, such as PowerRail solution; and high-current low-voltage flexible power cabling systems that are used in aerospace, cloud computing, commercial vehicles, construction equipment, industrial, military, power conversion, and transportation markets and applications. The Interface segment provides various copper-based transceivers and related accessories for the cloud computing hardware equipment and telecommunications broadband equipment markets; user interface solutions for the appliance, commercial food service, and point-of-sale equipment markets; and fluid-level sensors for the marine/recreational vehicle and sump pump markets. The Medical segment offers Dabir Surfaces, a surface support technology aimed at pressure injury prevention for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures. Methode Electronics, Inc. was incorporated in 1946 and is headquartered in Chicago, Illinois.

About Deswell Industries

Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components, electronic products and subassemblies, and metallic molds and accessory parts for original equipment manufacturers and contract manufacturers in China, the United States, Europe, Hong Kong, the United Kingdom, Canada, and internationally. It operates through two segments, Plastic Injection Molding and Electronic Products Assembling. The company produces a range of plastic parts and components that are used in the manufacture of consumer and industrial products, which include plastic components for electronic entertainment products, power tools, accessories, and outdoor equipment; cases for flashlights, telephones, printers, scanners; parts for industrial components, and indoor control switches, as well as parts for audio equipment, and cases and key tops for personal organizers and remote controls; double injection caps; parts for medical products comprising apparatus for blood tests; laser key caps; automobile components; and plastic components of automatic robot. It also provides electronic products that consist of audio equipment, including digital and analogue audio mixers, amplifiers, signal processors, audio interfaces, network audio equipment, and speaker enclosures; consumer audio products, such as multi-channel receivers-amplifiers, wired and wireless audio streaming products, and headphones; printed circuit board assemblies; and medical products. The company was founded in 1987 and is based in Macau.