Foolish Forecast: Don't Touch DTS

Thursday night is earnings night for digital-entertainment technologist DTS (Nasdaq: DTSI). Are we looking for a scrambled signal or pure digital clarity in the fourth quarter? Read on, and all will be clear.

What Fools say:
Here's how DTS's CAPS rating stacks up against some of its peers and competitors:

	Market Cap (millions)	Trailing P/E Ratio	CAPS Rating (out of 5)
Sony (NYSE: SNE)	$49,060	20.4	**
Dolby Laboratories (NYSE: DLB)	$5,167	33.0	*****
National CineMedia (Nasdaq: NCMI)	$902	56.0	**
DTS	$414	N/M	*
SRS Labs (Nasdaq: SRSL)	$71	12.5	*****

Data taken from Motley Fool CAPS on Feb. 27.

The only CAPS comment on this stock since last May comes from a grumpy bear, who thinks that the company is "trying to figure itself out." In the last five months, there have been five "outperform" calls on DTS and 11 "underperform" calls. The thumbs-down ratings have been the good ones.

What management does:

Margins	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Gross	84.7%	89.7%	75.7%	73.1%	74.6%	75.3%
Operating	21.3%	21.6%	4.9%	(7.0%)	(3.1%)	(0.6%)
Net	17.4%	16.2%	3.9%	(6.8%)	(9.9%)	(10.1%)
FCF/Revenue	17.6%	16.1%	(2.1%)	(21.8%)	(19.0%)	(14.1%)

Growth (YOY)	6/2006	9/2006	12/2006	3/2007	6/2007	9/2007
Revenue	(9.2%)	(22.0%)	4.1%	(4.9%)	11.9%	29.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
You might think that a company with a finger in just about every DVD player sold, as well as a lot of the shiny discs that go in them, would be rolling in moolah. You'd be wrong, though. DTS makes no more than $10 million to $20 million in revenue per quarter, and spends about as much on operating expenses. It doesn't generate reliable cash flow, and it doesn't offer predictable growth, as seen above.

If you're interested in DTS because you like the underlying technology, your investment dollars would be in much safer hands with Dolby. Take all the bad things I just said about DTS, turn them around 180 degrees, and you get Dolby's model of efficiency, with strong cash flows and accelerating growth. That's what I'd call a good investment.

Sorry, DTS. You're losing this two-horse race. There just aren't any business catalysts that could push DTS into the same league as the competition. The company has missed Wall Street's targets in two of the last five quarters, and I can smell another disappointment coming up.