Vocera vs. Knowles: Which Communication Equipment Stock is a Better Buy?

Vocera Communications, Inc. (VCRA) in San Jose, Calif., provides secure, integrated, and intelligent communication and workflow solutions that empower mobile workers in healthcare, hospitality, retail, energy, education, and other mission-critical mobile work environments in the United States and internationally. In comparison, Knowles Corporation (KN) in Itasca, Ill., designs, manufactures and sells micro-acoustic, audio processing, and precision device solutions for the mobile consumer electronics, communications, medtech, defense, electric vehicle, and industrial markets.

Rapidly developing telecommunications infrastructure is fostering increased demand for communication equipment. Although the industry has been struggling with several supply chain disruptions over the past year, demand is rebounding with the recovering economy, rising consumer spending, and demand from downstream industries. In addition, the demand for 5G services is increasing, with companies investing significantly to deploy 5G solutions, while the Biden administration is focusing on improving broadband internet access in rural areas. These developments should increase the demand for advanced communication solutions, aiding the industry’s growth. So, we think both VCRA and KN should benefit from the industry tailwinds.

VCRA has gained 60.8% in price over the past six months, while KN has returned 17%. In terms of the past year’s performance, VCRA is the winner with 61% price gains versus KN’s 28.4%. Also, VCRA’s 58.7% gains year-to-date compares with KN’s 25.2% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

On November 16, VCRA announced its collaboration with Amazon.com, Inc. (AMZN) to build a Vocera skill for Alexa. The intelligent solution is also designed to provide a hands-free voice experience to patients and families, making it easier and faster for them to get information and reach the proper care team members with simple voice requests. This enhancement in VCRA’s voice communication technology should elevate patient and care teams' experience.

This month, KN and Ole Wolff, a manufacturer of high-quality speakers, receivers, and providers of acoustic system integration, announced their collaboration to develop a compact market-leading hybrid audio solution for True Wireless Stereo (TWS) earphones with high-definition audio and active noise cancellation (ANC). The hybrid driver should be widely in demand and enhance KN’s position as a provider of advanced audio solutions.

Recent Financial Results

VCRA’s total revenues increased 18.1% year-over-year to $63.57 million in its fiscal third quarter, ended September 30. Its income from operations stood at $3.39 million, down 15.6% from the same period last year. Its non-GAAP net income grew 27.4% from its year-ago value to $10.83 million. The company’s non-GAAP EPS increased 7.7% year-over-year to $0.28.

For its fiscal third quarter, ended September 30, KN’s revenues increased 13.2% year-over-year to $233 million. Its operating earnings rose 154.4% from its year-ago value to $34.60 million, while non-GAAP net earnings increased 92.8% from the same period last year to $43 million. The company’s non-GAAP EPS increased 87.5% year-over-year to $0.45.

Past and Expected Financial Performance

VCRA’s revenues and levered FCF have grown at CAGRs of 8.8% and 51.9%, respectively, over the past three years. Analysts expect VCRA’s revenue to increase 13.1% in the current quarter, 17% in the current year, and 14.3% in the following year. The company’s EPS is expected to decline 32.1% in the current quarter but grow 22.8% in the current year and 18.6% in the next year. And its EPS is expected to grow 19% per annum over the next five years.

In comparison, KN’s revenues and levered FCF have grown at CAGRs of 2.3% and 23.6%, respectively, over the past three years. Analysts expect the company’s revenue to increase 13.4% in the current year and 6.9% in the next year. However, its revenue is expected to decline 4.1% year-over-year in the current quarter. The company’s EPS is expected to grow 15.8% in the current quarter, 132.8% in the current year, and 6.7% in the following year. And KN’s EPS is expected to grow 15% per annum over the next five years.

Profitability

KN is more profitable, with EBITDA and net income margins of 20.38% and 9.97%, respectively, compared to VCRA’s 5.25% and negative 3.43%.

Furthermore, KN’s 4.32%, 4.77%, and 6.63% respective ROA, ROTC, and ROE compare with VCRA’s 0.34%, 0.43%, and negative 4.76%.

Thus, KN is more profitable here.

Valuation

In terms of forward EV/Sales, VCRA is currently trading at 9.65x, which is 74.2% higher than KN’s 2.49x. Also, VCRA’s 56.40 forward EV/EBITDA ratio  is 83% higher than KN’s 9.58.

Thus, KN is relatively affordable here.

POWR Ratings

KN has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, VCRA has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Both the stocks have a C Sentiment grade. Mixed analyst estimates regarding the stocks justify the grades.

KN has a B grade for Value. This is justified because its 1.03x non-GAAP forward PEG is 41% lower than the 1.75x industry average. On the other hand, VCRA has a D grade for Value. VCRA’s 4.93x non-GAAP forward PEG is 156.6% higher than the industry average.

Of the 45 stocks in the Technology – Electronics industry, KN is ranked #17. Alternatively, among the 55 stocks in the Technology - Communication/Networking industry, VCRA is ranked #29.

Beyond what we have stated above, we have also rated the stocks for Stability, Momentum, Quality, and Growth. Click here to view KN ratings. Also, get all VCRA ratings here.

The Winner

Both VCRA and KN should benefit from the rebounding demand for communication equipment. However, its lower valuation and higher profit margins we think make KN the better buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Electronics industry here. Also, click here to view the top-rated stocks in the Technology - Communication/Networking industry.

VCRA shares were trading at $65.93 per share on Tuesday morning, up $0.04 (+0.06%). Year-to-date, VCRA has gained 58.75%, versus a 29.53% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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