Financial Review: Direct Digital (NASDAQ:DRCT) and Stagwell (NASDAQ:STGW)

Stagwell (NASDAQ:STGW) and Direct Digital (NASDAQ:DRCT) are both small-cap business services companies, but which is the superior business? We will compare the two businesses based on the strength of their risk, profitability, dividends, institutional ownership, valuation, analyst recommendations and earnings.

Volatility & Risk

Stagwell has a beta of 1.51, indicating that its share price is 51% more volatile than the S&P 500. Comparatively, Direct Digital has a beta of 5.87, indicating that its share price is 487% more volatile than the S&P 500.

Profitability

This table compares Stagwell and Direct Digital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Stagwell	-0.06%	14.54%	2.79%
Direct Digital	-26.76%	N/A	-39.57%

Insider and Institutional Ownership

35.6% of Stagwell shares are owned by institutional investors. Comparatively, 4.0% of Direct Digital shares are owned by institutional investors. 5.6% of Stagwell shares are owned by company insiders. Comparatively, 46.9% of Direct Digital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Valuation and Earnings

This table compares Stagwell and Direct Digital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Stagwell	$2.89 billion	0.44	$2.26 million	$0.06	84.67
Direct Digital	$62.29 million	0.06	-$6.24 million	($1.36)	-0.13

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

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Stagwell and Direct Digital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stagwell	1	3	3	1	2.50
Direct Digital	1	1	1	0	2.00

Stagwell presently has a consensus target price of $8.15, suggesting a potential upside of 60.43%. Direct Digital has a consensus target price of $6.00, suggesting a potential upside of 3,384.32%. Given Direct Digital’s higher probable upside, analysts clearly believe Direct Digital is more favorable than Stagwell.

Summary

Stagwell beats Direct Digital on 12 of the 15 factors compared between the two stocks.

About Stagwell

Stagwell Inc. provides digital transformation, performance media and data, consumer insights and strategy, and creativity and communications services. The company operates through three segments: Integrated Agencies Network, Brand Performance Network, and Communications Network. It designs and builds digital platforms and experiences that support the delivery of content, commerce, service, and sales; creates websites, mobile applications, back-end systems, content and data management systems, and other digital environments; designs and implements technology and data strategies; and develops software and related technology products, including artificial intelligence (AI)-enabled communications, research, and media technology, cookie-less data platforms for advance targeting and activation, software tools for e-commerce applications, specialty media solutions in the augmented reality space, and text messaging applications for consumer engagement. The company also provides audience analysis, and media buying and planning services; and strategic insights and guidance services that offers business content, product, communications, and media strategies. In addition, it offers strategy development, advertising creation, live events, immersive digital experiences, cross platform engagement, and social media content services; and leadership, investor and financial relations, social media, executive positioning and visibility, strategic communication, public relation, and public affair services. Further, the company provides Stagwell Marketing Cloud, a suite of software-as-a-service (SaaS) and data-as-a-service (DaaS) technology solutions, including research and insights, communications technology, advance media platform, and media studios; and technology-driven solutions for in-house marketers. Stagwell Inc. is headquartered in New York, New York.

About Direct Digital

Direct Digital Holdings, Inc. operates as an end-to-end full-service programmatic advertising platform. The company's platform primarily focuses on providing advertising technology, data-driven campaign optimization, and other solutions to underserved and less efficient markets on both the buy- and sell-side of the digital advertising ecosystem. It serves various industry verticals, such as travel, healthcare, education, financial services, consumer products, and other sectors with a focus on small and mid-sized businesses. The company was founded in 2018 and is headquartered in Houston, Texas.