Critical Analysis: Electro-Sensors (NASDAQ:ELSE) and Transcat (NASDAQ:TRNS)

Electro-Sensors (NASDAQ:ELSE) and Transcat (NASDAQ:TRNS) are both small-cap computer and technology companies, but which is the superior business? We will compare the two companies based on the strength of their profitability, earnings, valuation, risk, dividends, analyst recommendations and institutional ownership.

Insider and Institutional Ownership

11.7% of Electro-Sensors shares are held by institutional investors. Comparatively, 98.3% of Transcat shares are held by institutional investors. 13.3% of Electro-Sensors shares are held by company insiders. Comparatively, 2.8% of Transcat shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Analyst Recommendations

This is a summary of recent recommendations for Electro-Sensors and Transcat, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Electro-Sensors	0	1	0	0	2.00
Transcat	2	0	2	1	2.40

Transcat has a consensus target price of $105.33, suggesting a potential upside of 31.11%. Given Transcat’s stronger consensus rating and higher probable upside, analysts plainly believe Transcat is more favorable than Electro-Sensors.

Profitability

This table compares Electro-Sensors and Transcat’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Electro-Sensors	3.02%	2.10%	1.98%
Transcat	2.47%	6.15%	4.15%

Risk and Volatility

Electro-Sensors has a beta of 0.08, indicating that its stock price is 92% less volatile than the S&P 500. Comparatively, Transcat has a beta of 0.71, indicating that its stock price is 29% less volatile than the S&P 500.

Valuation and Earnings

This table compares Electro-Sensors and Transcat”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Electro-Sensors	$10.14 million	2.66	$310,000.00	$0.09	84.78
Transcat	$278.42 million	2.69	$14.52 million	$0.85	94.52

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

Summary

Transcat beats Electro-Sensors on 13 of the 15 factors compared between the two stocks.

About Electro-Sensors

Electro-Sensors, Inc. engages in the manufacture and selling of industrial production monitoring and process control systems. Its products include shaft speed witches; wireless hazard monitoring; temperature sensor; slide gate and angle position; bearing sensors and belt alignment; and motor drive control. The company was founded by James P. Slattery in 1965 and is headquartered in Minnetonka, MN.

About Transcat

Transcat, Inc. provides calibration and laboratory instrument services in the United States, Canada, and internationally. It operates through two segments: Service and Distribution. The Service segment offers calibration, repair, inspection, analytical qualification, preventative maintenance, consulting, and other related services. This segment also provides CalTrak, a proprietary document and asset management system that is used to manage the workflow of its calibration service centers and customers’ assets; and Compliance, Control and Cost, an online customer portal that provides its customers with web-based asset management capability, as well as a safe and secure off-site archive of calibration and other service records. The Distribution segment sells and rents test, measurement, and control instruments for customers’ test and measurement instrumentation needs, as well as value added services, such as calibration/certification of equipment purchase, equipment rental, used equipment for sale, and equipment kitting. This segment markets and sells its products through website, digital and print advertising, proactive outbound sales, and an inbound call center. The company provides services and products to highly regulated industries, principally life science, which includes companies in the pharmaceutical, biotechnology, medical device, and other FDA-regulated industries; and additional industries, including aerospace and defense industrial manufacturing, energy and utilities, and other industries that require accuracy in processes and confirmation of the capabilities of their equipment. Transcat, Inc. was incorporated in 1964 and is headquartered in Rochester, New York.