Power Solutions International (OTCMKTS: PSIX) and Eaton (NYSE:ETN) are both auto/tires/trucks companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, earnings, dividends, profitability, risk, institutional ownership and analyst recommendations.

Profitability

This table compares Power Solutions International and Eaton’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Power Solutions International N/A N/A N/A
Eaton 14.21% 12.89% 6.43%

Institutional and Insider Ownership

5.9% of Power Solutions International shares are owned by institutional investors. Comparatively, 76.8% of Eaton shares are owned by institutional investors. 56.5% of Power Solutions International shares are owned by insiders. Comparatively, 0.8% of Eaton shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Dividends

Eaton pays an annual dividend of $2.40 per share and has a dividend yield of 3.2%. Power Solutions International does not pay a dividend. Eaton pays out 37.7% of its earnings in the form of a dividend. Power Solutions International has increased its dividend for 7 consecutive years.

Analyst Ratings

This is a breakdown of current ratings and price targets for Power Solutions International and Eaton, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Power Solutions International 0 3 1 0 2.25
Eaton 3 11 6 0 2.15

Power Solutions International presently has a consensus target price of $13.50, indicating a potential upside of 38.46%. Eaton has a consensus target price of $82.54, indicating a potential upside of 8.72%. Given Power Solutions International’s stronger consensus rating and higher probable upside, analysts clearly believe Power Solutions International is more favorable than Eaton.

Valuation and Earnings

This table compares Power Solutions International and Eaton’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Power Solutions International $389.45 million 0.34 $14.27 million N/A N/A
Eaton $19.75 billion 1.69 $1.92 billion $6.37 11.92

Eaton has higher revenue and earnings than Power Solutions International.

Risk & Volatility

Power Solutions International has a beta of 2.84, suggesting that its share price is 184% more volatile than the S&P 500. Comparatively, Eaton has a beta of 1.39, suggesting that its share price is 39% more volatile than the S&P 500.

Summary

Eaton beats Power Solutions International on 9 of the 15 factors compared between the two stocks.

About Power Solutions International

Power Solutions International, Inc. is a producer and distributor of a range of low-emission power systems that run on non-diesel fuels, such as natural gas, propane and gasoline. The Company’s industrial power systems are used by original equipment manufacturers (OEMs) in a range of industries with a diversified set of applications, including stationary electricity generators, oil and gas equipment, forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural and turf equipment, aircraft ground support equipment, construction and irrigation equipment, and other industrial equipment. The Company provides alternative fuel power systems for OEMs of off-highway industrial equipment and on-road medium trucks and busses. In addition to its emission-certified power systems, the Company produces and distributes non-emission-certified power systems for industrial OEMs for particular applications in markets without emission standards.

About Eaton

Eaton Corporation (Eaton) is a diversified power management company. It is engaged in the manufacturing of electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use, and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. On January 1, 2011, it closed the acquisition of the Tuthill Coupling Group, which is a division of the Tuthill Corporation. It has five segments: Electrical Americas and Electrical Rest of World; Hydraulics; Aerospace; Truck, and Automotive. On October 1, 2010, it acquired CopperLogic, Inc. On July 15, 2010, it acquired EMC Engineers, Inc. In May 2011, it acquired Internormen Technology Group. In August 2011, it acquired IE Power, Inc. In December 2011, it acquired E.A. Pedersen Company.

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