Dillard's (NYSE:DDS) and The Gap (NYSE:GPS) are both retail/wholesale companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, valuation, profitability, institutional ownership, analyst recommendations, dividends and risk.
Insider and Institutional Ownership
59.7% of Dillard's shares are owned by institutional investors. Comparatively, 52.7% of The Gap shares are owned by institutional investors. 24.1% of Dillard's shares are owned by company insiders. Comparatively, 41.4% of The Gap shares are owned by company 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.
Analyst Recommendations
This is a summary of current ratings for Dillard's and The Gap, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score |
|---|
| Dillard's | 1 | 3 | 0 | 0 | 1.75 |
| The Gap | 0 | 13 | 6 | 0 | 2.32 |
Dillard's currently has a consensus target price of $74.75, indicating a potential downside of 51.47%. The Gap has a consensus target price of $31.5556, indicating a potential upside of 0.88%. Given The Gap's stronger consensus rating and higher possible upside, analysts plainly believe The Gap is more favorable than Dillard's.
Risk and Volatility
Dillard's has a beta of 0.82, indicating that its share price is 18% less volatile than the S&P 500. Comparatively, The Gap has a beta of 1.66, indicating that its share price is 66% more volatile than the S&P 500.
Profitability
This table compares Dillard's and The Gap's net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets |
|---|
| Dillard's | 5.13% | 16.69% | 7.36% |
| The Gap | 2.76% | 14.85% | 2.69% |
Valuation & Earnings
This table compares Dillard's and The Gap's revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio |
|---|
| Dillard's | $4.30 billion | 0.79 | $-71,650,000.00 | ($2.73) | -56.42 |
| The Gap | $13.80 billion | 0.86 | $-665,000,000.00 | ($1.99) | -15.72 |
Dillard's has higher earnings, but lower revenue than The Gap. Dillard's is trading at a lower price-to-earnings ratio than The Gap, indicating that it is currently the more affordable of the two stocks.
Dividends
Dillard's pays an annual dividend of $0.60 per share and has a dividend yield of 0.4%. The Gap pays an annual dividend of $0.97 per share and has a dividend yield of 3.1%. Dillard's pays out -22.0% of its earnings in the form of a dividend. The Gap pays out -48.7% 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. Dillard's has raised its dividend for 1 consecutive years. The Gap is clearly the better dividend stock, given its higher yield and lower payout ratio.
Summary
The Gap beats Dillard's on 11 of the 17 factors compared between the two stocks.
