Brocade Communications Systems (NASDAQ: BRCD) and Ribbon Communications (NASDAQ:RBBN) are both technology companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, institutional ownership, profitability, valuation, dividends, earnings and risk.

Volatility and Risk

Brocade Communications Systems has a beta of 0.54, suggesting that its stock price is 46% less volatile than the S&P 500. Comparatively, Ribbon Communications has a beta of 2.08, suggesting that its stock price is 108% more volatile than the S&P 500.

Profitability

This table compares Brocade Communications Systems and Ribbon Communications’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Brocade Communications Systems -3.56% -3.07% -1.62%
Ribbon Communications -8.82% -1.87% -1.32%

Dividends

Brocade Communications Systems pays an annual dividend of $0.22 per share and has a dividend yield of 1.7%. Ribbon Communications does not pay a dividend. Brocade Communications Systems pays out 314.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Recommendations

This is a summary of recent ratings and price targets for Brocade Communications Systems and Ribbon Communications, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Brocade Communications Systems 1 3 0 0 1.75
Ribbon Communications 1 1 4 0 2.50

Brocade Communications Systems currently has a consensus price target of $12.83, indicating a potential upside of 1.13%. Ribbon Communications has a consensus price target of $7.05, indicating a potential downside of 9.85%. Given Brocade Communications Systems’ higher probable upside, equities research analysts plainly believe Brocade Communications Systems is more favorable than Ribbon Communications.

Institutional & Insider Ownership

83.7% of Brocade Communications Systems shares are owned by institutional investors. Comparatively, 32.3% of Ribbon Communications shares are owned by institutional investors. 1.8% of Brocade Communications Systems shares are owned by company insiders. Comparatively, 7.7% of Ribbon Communications shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Brocade Communications Systems and Ribbon Communications’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Brocade Communications Systems $2.35 billion 2.24 $213.81 million $0.07 181.29
Ribbon Communications $252.59 million 3.18 -$13.93 million ($0.45) -17.38

Brocade Communications Systems has higher revenue and earnings than Ribbon Communications. Ribbon Communications is trading at a lower price-to-earnings ratio than Brocade Communications Systems, indicating that it is currently the more affordable of the two stocks.

About Brocade Communications Systems

Brocade Communications Systems, Inc. (Brocade) is a supplier of networking hardware, software and services, including storage area networking (SAN) solutions and Internet protocol (IP) networking solutions for businesses and organizations of various types and sizes. The Company operates through three segments: SAN Products, IP Networking Products and Global Services. The SAN Products segment includes infrastructure products and solutions that help customers develop and deploy storage and server consolidation, disaster recovery and data security. The IP Networking Products segment includes Layer 2 and Layer 3 Ethernet switches, and routers to connect users over private and public networks. The Global Services segment includes break or fix maintenance, installation, consulting, network management and software maintenance, and post-contract customer support. Its products enable customers to deploy architectures and technologies, including virtualization and cloud computing.

About Ribbon Communications

Sonus Networks, Inc., formerly Solstice Sapphire Investments, Inc., is a provider of networked solutions for communications service providers and enterprises to help them secure and unify their real-time communications infrastructures. The Company helps communications service providers and enterprises hold the session initiation protocol (SIP) and fourth generation (4G)/long term evolution (LTE)-based solutions, including voice over Internet protocol (VoIP), voice over wireless fidelity (VoWiFi), video and unified communications (UC) by securing and enabling Internet Protocol (IP) networks. Its products include session border controllers (SBCs), diameter signaling controllers (DSCs) and VoWiFi solutions. Sonus Products include Sonus GSX9000 Open Services Switch, Sonus T7000 Intelligent Switching System, Sonus Diameter Signaling Controllers, Sonus Signal Transfer Points, Sonus PSX Policy & Routing Server, Sonus WebRTC Services Solution, and Sonus Network Management Solutions.

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