Digital Power Corporation (NYSE:DPW) shares are up more than 458.86% this year and recently increased 36.89% or $1.35 to settle at $5.01. Plug Power Inc. (NASDAQ:PLUG), on the other hand, is up 94.17% year to date as of 12/05/2017. It currently trades at $2.34 and has returned -0.85% during the past week.
Digital Power Corporation (NYSE:DPW) and Plug Power Inc. (NASDAQ:PLUG) are the two most active stocks in the Diversified Electronics industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, PLUG is expected to grow at a 25.00% annual rate. All else equal, PLUG’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. DPW’s ROI is -30.70% while PLUG has a ROI of -33.30%. The interpretation is that DPW’s business generates a higher return on investment than PLUG’s.
Cash is king when it comes to investing. DPW’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, PLUG’s free cash flow per share was -0.14. On a percent-of-sales basis, DPW’s free cash flow was -0.01% while PLUG converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, DPW is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. DPW has a current ratio of 0.60 compared to 1.30 for PLUG. This means that PLUG can more easily cover its most immediate liabilities over the next twelve months. DPW’s debt-to-equity ratio is 0.48 versus a D/E of 1.15 for PLUG. PLUG is therefore the more solvent of the two companies, and has lower financial risk.
DPW trades at a P/B of 5.81, and a P/S of 6.39, compared to a P/B of 6.13, and a P/S of 5.06 for PLUG. DPW is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. DPW has a beta of 1.84 and PLUG’s beta is 1.73. PLUG’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.DPW has a short ratio of 0.22 compared to a short interest of 5.92 for PLUG. This implies that the market is currently less bearish on the outlook for DPW.
Digital Power Corporation (NYSE:DPW) beats Plug Power Inc. (NASDAQ:PLUG) on a total of 7 of the 13 factors compared between the two stocks. DPW generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, DPW has better sentiment signals based on short interest.