Document Security Systems, Inc. (NYSE:DSS) shares are up more than 191.29% this year and recently decreased -6.28% or -$0.13 to settle at $1.94. Payment Data Systems, Inc. (NASDAQ:PYDS), on the other hand, is up 37.30% year to date as of 12/27/2017. It currently trades at $2.54 and has returned -25.95% during the past week.
Document Security Systems, Inc. (NYSE:DSS) and Payment Data Systems, Inc. (NASDAQ:PYDS) are the two most active stocks in the Business Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Document Security Systems, Inc. (DSS) has an EBITDA margin of 4.94%. This suggests that DSS underlying business is more profitable DSS’s ROI is -6.90% while PYDS has a ROI of -15.50%. The interpretation is that DSS’s business generates a higher return on investment than PYDS’s.
Cash is king when it comes to investing. DSS’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, PYDS’s free cash flow per share was +0.00. On a percent-of-sales basis, DSS’s free cash flow was -0% while PYDS converted 0% of its revenues into cash flow. This means that, for a given level of sales, DSS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. DSS has a current ratio of 0.90 compared to 1.00 for PYDS. This means that PYDS can more easily cover its most immediate liabilities over the next twelve months. DSS’s debt-to-equity ratio is 1.46 versus a D/E of 0.00 for PYDS. DSS is therefore the more solvent of the two companies, and has lower financial risk.
DSS trades at a P/B of 6.69, and a P/S of 1.95, compared to a P/B of 2.00, and a P/S of 3.40 for PYDS. DSS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. DSS is currently priced at a -67.67% to its one-year price target of 6.00. Comparatively, PYDS is -68.25% relative to its price target of 8.00. This suggests that PYDS is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. DSS has a beta of 3.13 and PYDS’s beta is 1.11. PYDS’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. DSS has a short ratio of 0.12 compared to a short interest of 0.09 for PYDS. This implies that the market is currently less bearish on the outlook for PYDS.
Payment Data Systems, Inc. (NASDAQ:PYDS) beats Document Security Systems, Inc. (NYSE:DSS) on a total of 7 of the 14 factors compared between the two stocks. PYDS is more profitable, higher liquidity and has lower financial risk. PYDS is more undervalued relative to its price target. Finally, PYDS has better sentiment signals based on short interest.