Contrasting Ross Stores (NASDAQ:ROST) & GAP (NYSE:GAP)

Ross Stores (NASDAQ:ROST) and GAP (NYSE:GAP) 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, valuation, risk, dividends, analyst recommendations, earnings and profitability.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ross Stores	9.82%	42.43%	14.35%
GAP	5.05%	28.89%	6.92%

Volatility and Risk

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

Insider & Institutional Ownership

86.9% of Ross Stores shares are owned by institutional investors. Comparatively, 58.8% of GAP shares are owned by institutional investors. 2.1% of Ross Stores shares are owned by insiders. Comparatively, 31.0% of GAP shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Earnings and Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ross Stores	$20.38 billion	2.35	$1.87 billion	$6.20	23.29
GAP	$15.17 billion	0.53	$502.00 million	($27.20)	-0.79

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.

Dividends

Ross Stores pays an annual dividend of $1.47 per share and has a dividend yield of 1.0%. GAP pays an annual dividend of $0.60 per share and has a dividend yield of 2.8%. Ross Stores pays out 23.7% of its earnings in the form of a dividend. GAP pays out -2.2% 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.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Ross Stores and GAP, as reported by MarketBeat.com.

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

Ross Stores currently has a consensus price target of $169.71, suggesting a potential upside of 17.54%. GAP has a consensus price target of $27.00, suggesting a potential upside of 25.99%. Given GAP’s higher possible upside, 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 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.

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.