Magic Software Enterprises (NASDAQ: MGIC) and Bottomline Technologies (NASDAQ:EPAY) are both small-cap software – nec companies, but which is the superior investment? We will contrast the two companies based on the strength of their earnings, dividends, valuation, profitability, risk, analyst recommendations and institutional ownership.

Profitability

This table compares Magic Software Enterprises and Bottomline Technologies’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Magic Software Enterprises 4.77% 10.37% 6.30%
Bottomline Technologies -7.51% 5.84% 2.54%

Insider & Institutional Ownership

9.3% of Magic Software Enterprises shares are held by institutional investors. Comparatively, 98.5% of Bottomline Technologies shares are held by institutional investors. 4.5% of Magic Software Enterprises shares are held by insiders. Comparatively, 2.4% of Bottomline Technologies shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

Magic Software Enterprises pays an annual dividend of $0.26 per share and has a dividend yield of 2.9%. Bottomline Technologies does not pay a dividend. Magic Software Enterprises pays out 100.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Earnings & Valuation

This table compares Magic Software Enterprises and Bottomline Technologies’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Magic Software Enterprises $201.65 million 1.97 $11.90 million $0.26 34.42
Bottomline Technologies $349.41 million 4.20 -$33.13 million ($0.71) -51.08

Magic Software Enterprises has higher earnings, but lower revenue than Bottomline Technologies. Bottomline Technologies is trading at a lower price-to-earnings ratio than Magic Software Enterprises, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Magic Software Enterprises and Bottomline Technologies, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Magic Software Enterprises 0 0 3 0 3.00
Bottomline Technologies 0 1 4 0 2.80

Magic Software Enterprises currently has a consensus price target of $10.17, suggesting a potential upside of 13.59%. Bottomline Technologies has a consensus price target of $33.25, suggesting a potential downside of 8.33%. Given Magic Software Enterprises’ stronger consensus rating and higher probable upside, equities research analysts clearly believe Magic Software Enterprises is more favorable than Bottomline Technologies.

Volatility and Risk

Magic Software Enterprises has a beta of 0.65, indicating that its stock price is 35% less volatile than the S&P 500. Comparatively, Bottomline Technologies has a beta of 1.17, indicating that its stock price is 17% more volatile than the S&P 500.

Summary

Magic Software Enterprises beats Bottomline Technologies on 10 of the 16 factors compared between the two stocks.

About Magic Software Enterprises

Magic Software Enterprises Ltd. is a provider of application development, business process integration platforms, vertical software solutions and related professional services. The Company is a vendor of information technology (IT) outsourcing services. Its software technology is used by customers to develop, deploy and integrate on premise, mobile and cloud-based business. It operates through two segments: software solutions and IT professional services. The software services segment includes software technology and complementary services. The IT professional services segment offers IT services in the areas of infrastructure design and delivery, application development, technology planning and implementation services, and communications services and solutions. Its product portfolio includes Magic xpa Application Platform, AppBuilder Application Platform and Magic xpi Integration Platform. Its vertical software packages include Leap, Hermes Solution, HR Pulse and MBS Solution.

About Bottomline Technologies

Bottomline Technologies (de), Inc. is engaged in providing a set of cloud-based business payment, digital banking, fraud prevention, payment and financial document solutions. The Company helps businesses pay and get paid. It offers hosted or Software as a Service (SaaS) solutions, as well as software designed to run on-site at the customer’s location. It operates through four segments: Payments and Transactional Documents, Hosted Solutions, Digital Banking and Other. The Payments and Transactional Documents segment is a supplier of software products that provide a range of financial business process management solutions, including making and collecting payments and generating and storing business documents. The Hosted Solutions segment provides customers with SaaS technology offerings. The Digital Banking segment provides solutions to banking and financial institution customers. The Other segment consists of its healthcare and cyber fraud and risk management operating segments.

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