PLT's headsets are certainly very high quality, and HELO agrees, and carries them as part of its product line. HELO's headsets are also high quality. I think which you prefer depends on the shape of your ears and head, and other personal matters.
Your idea of checking profit margins as evidence about whether a company is adding value to the raw materials, and thus being paid for expertise and innovations, is an excellent one. The correct profit margin to check for that information is the gross profit margin, which is almost exactly equal at 54% for both companies, using PLT's Q4 and HELO's Q3 number, since its Q4 won't be out until 1/27.
The reason for the big differential in net margins has to do with how the companies market their product:
PLT ships the products to its dealers, and, other than a little advertising and marketing support, leaves it up to the dealers to spend the money to reach the actual customer.
HELO, a direct seller, has heavy marketing expenses, primarily mailing out about 30,000,000 catalogs, at a cost of close to $2.75 per share annually. Thus its net margins are much lower.
The good news for HELO is that, due to the rise of internet buying, it can place its catalog on the web and grow the business without having to increase its catalog mailings. In fact, it strikes me as plausible that, say five years from now, it may be able to eliminate the paper catalog altogether, other then as a modest prospecting tool. So even if HELO were to have no growth at all in its top line (highly unlikely, since it benefits from the same trends that will be working in PLT's favor), it has the potential to shift a huge expense into operating profits, and get its net margin up to PLT's level.
That is why I expect faster eps growth for HELO than PLT. Combine that with HELO's lower multiple, and I think that HELO is the better buy here. But both should do very well. |
