GAP (NYSE: GPS) and Ross Stores (NASDAQ:ROST) are both large-cap retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, dividends, earnings, valuation, risk, analyst recommendations and institutional ownership.

Profitability

This table compares GAP and Ross Stores’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
GAP 5.57% 27.47% 10.56%
Ross Stores 8.93% 43.21% 21.90%

Institutional & Insider Ownership

54.6% of GAP shares are owned by institutional investors. Comparatively, 91.4% of Ross Stores shares are owned by institutional investors. 27.3% of GAP shares are owned by company insiders. Comparatively, 2.3% of Ross Stores shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current ratings and target prices for GAP and Ross Stores, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
GAP 3 20 6 0 2.10
Ross Stores 0 7 15 0 2.68

GAP presently has a consensus price target of $28.40, indicating a potential downside of 16.14%. Ross Stores has a consensus price target of $74.53, indicating a potential downside of 10.83%. Given Ross Stores’ stronger consensus rating and higher possible upside, analysts clearly believe Ross Stores is more favorable than GAP.

Risk and Volatility

GAP has a beta of 0.94, meaning that its share price is 6% less volatile than the S&P 500. Comparatively, Ross Stores has a beta of 1.15, meaning that its share price is 15% more volatile than the S&P 500.

Earnings and Valuation

This table compares GAP and Ross Stores’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
GAP $15.52 billion 0.85 $676.00 million $2.17 15.61
Ross Stores $12.87 billion 2.48 $1.12 billion $3.13 26.70

Ross Stores has lower revenue, but higher earnings than GAP. GAP is trading at a lower price-to-earnings ratio than Ross Stores, indicating that it is currently the more affordable of the two stocks.

Dividends

GAP pays an annual dividend of $0.92 per share and has a dividend yield of 2.7%. Ross Stores pays an annual dividend of $0.64 per share and has a dividend yield of 0.8%. GAP pays out 42.4% of its earnings in the form of a dividend. Ross Stores pays out 20.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. GAP has raised its dividend for 11 consecutive years. GAP is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Ross Stores beats GAP on 13 of the 17 factors compared between the two stocks.

About GAP

The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online and franchise channels, it also uses the Company’s omni-channel capabilities to bridge the digital world and physical stores. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.

About Ross Stores

Ross Stores, Inc. and its subsidiaries operate two brands of off-price retail apparel and home fashion stores-Ross Dress for Less (Ross) and dd’s DISCOUNTS. The Company is the off-price apparel and home fashion chain in the United States, with 1,340 locations in 36 states, the District of Columbia and Guam, as of January 28, 2017. The Company offers in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. The Company also operated 193 dd’s DISCOUNTS stores in 15 states as of January 28, 2017. As of January 28, 2017, the Company operated a total of 1,533 stores consisted of 1,340 Ross stores and 193 dd’s DISCOUNTS stores. As of January 28, 2017, the Company owned and operated six distribution processing facilities-three in California, one in Pennsylvania, and two in South Carolina.

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