Douglas Dynamics (NYSE: PLOW) and Meritor (NYSE:MTOR) are both small-cap auto/tires/trucks companies, but which is the better investment? We will compare the two companies based on the strength of their profitabiliy, earnings, risk, analyst recommendations, institutional ownership, dividends and valuation.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Douglas Dynamics and Meritor, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Douglas Dynamics 0 0 2 0 3.00
Meritor 0 2 4 0 2.67

Douglas Dynamics presently has a consensus target price of $42.00, suggesting a potential upside of 34.19%. Meritor has a consensus target price of $16.17, suggesting a potential downside of 9.94%. Given Douglas Dynamics’ stronger consensus rating and higher possible upside, research analysts clearly believe Douglas Dynamics is more favorable than Meritor.

Dividends

Douglas Dynamics pays an annual dividend of $0.96 per share and has a dividend yield of 3.1%. Meritor does not pay a dividend. Douglas Dynamics pays out 72.2% of its earnings in the form of a dividend. Meritor has increased its dividend for 4 consecutive years.

Risk and Volatility

Douglas Dynamics has a beta of 1.14, meaning that its stock price is 14% more volatile than the S&P 500. Comparatively, Meritor has a beta of 2.21, meaning that its stock price is 121% more volatile than the S&P 500.

Profitability

This table compares Douglas Dynamics and Meritor’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Douglas Dynamics 6.83% 15.78% 5.33%
Meritor 17.24% -49.82% 5.72%

Institutional and Insider Ownership

85.7% of Douglas Dynamics shares are owned by institutional investors. Comparatively, 93.0% of Meritor shares are owned by institutional investors. 3.2% of Douglas Dynamics shares are owned by insiders. Comparatively, 2.9% of Meritor shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Douglas Dynamics and Meritor’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Douglas Dynamics $439.73 million 1.61 $88.60 million $1.33 23.53
Meritor $3.07 billion 0.52 $248.00 million $5.96 3.01

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

Summary

Meritor beats Douglas Dynamics on 10 of the 17 factors compared between the two stocks.

Douglas Dynamics Company Profile

Douglas Dynamics, Inc. is a manufacturer and up-fitter of commercial vehicle attachments and equipment. The Company’s portfolio includes snow and ice management attachments sold under the BLIZZARD, FISHER, HENDERSON, SNOWEX and WESTERN brands, turf care equipment under the TURFEX brand and industrial maintenance equipment under the SWEEPEX brand. The Company operates through two segments: Work Truck Attachments and Work Truck Solutions. The Work Truck Attachments segment includes snow and ice management attachments sold under the FISHER, WESTERN, HENDERSON and SNOWEX brands. The Work Truck Solutions segment includes the up-fit of attachments and storage solutions for commercial work vehicles under the DEJANA brand and its related sub-brands. In its Work Truck Attachments segment, the Company offers a product line of snowplows, and sand and salt spreaders for light and heavy duty trucks. Its Work Truck Solutions products consist of truck and vehicle up-fits.

Meritor Company Profile

Meritor, Inc. is a supplier of a range of integrated systems, modules and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The Company’s segments include Commercial Truck & Industrial and Aftermarket & Trailer. The Commercial Truck & Industrial segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, for medium- and heavy-duty trucks, off-highway, military, construction, bus and coach, fire and emergency and other applications in North America, South America, Europe and Asia Pacific. The Commercial Truck & Industrial segment also includes the Company’s aftermarket businesses in Asia Pacific and South America. The Aftermarket & Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement and remanufactured parts to commercial vehicle aftermarket customers in North America and Europe.

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