Head-To-Head Analysis: Ross Stores (NASDAQ:ROST) vs. GAP (NYSE:GAP)

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

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	5.05%	28.89%	6.92%
Ross Stores	9.82%	42.43%	14.35%

Volatility & Risk

GAP has a beta of 2.35, meaning that its stock price is 135% more volatile than the S&P 500. Comparatively, Ross Stores has a beta of 1.09, meaning that its stock price is 9% more volatile than the S&P 500.

Dividends

GAP pays an annual dividend of $0.60 per share and has a dividend yield of 2.8%. Ross Stores pays an annual dividend of $1.47 per share and has a dividend yield of 1.0%. GAP pays out -2.2% of its earnings in the form of a dividend. Ross Stores pays out 24.8% 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 is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional and Insider Ownership

58.8% of GAP shares are held by institutional investors. Comparatively, 86.9% of Ross Stores shares are held by institutional investors. 31.0% of GAP shares are held by company insiders. Comparatively, 2.1% of Ross Stores shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Earnings and Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
GAP	$15.17 billion	0.54	$502.00 million	($27.20)	-0.80
Ross Stores	$21.09 billion	2.31	$1.87 billion	$5.93	24.66

Ross Stores has higher revenue and 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.

Analyst Ratings

This is a summary of recent recommendations for GAP and Ross Stores, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
GAP	0	3	0	0	2.00
Ross Stores	0	3	13	1	2.88

GAP currently has a consensus target price of $27.00, suggesting a potential upside of 24.77%. Ross Stores has a consensus target price of $169.71, suggesting a potential upside of 16.04%. Given GAP’s higher probable upside, research analysts plainly believe GAP is more favorable than Ross Stores.

Summary

Ross Stores beats GAP on 12 of the 17 factors compared between the two stocks.

About GAP

The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.

About Ross Stores

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. Its stores primarily offer apparel, accessories, footwear, and home fashions. The company’s Ross Dress for Less stores sell its products at department and specialty stores to middle income households; and dd’s DISCOUNTS stores sell its products at department and discount stores for households with moderate income. Ross Stores, Inc. was incorporated in 1957 and is headquartered in Dublin, California.