Reviewing Guess? (GES) and GAP (GPS)

Guess? (NYSE: GES) and GAP (NYSE:GPS) are both consumer discretionary companies, but which is the superior investment? We will compare the two businesses based on the strength of their analyst recommendations, risk, institutional ownership, profitability, earnings, dividends and valuation.

Volatility and Risk

Guess? has a beta of 0.42, suggesting that its stock price is 58% less volatile than the S&P 500. Comparatively, GAP has a beta of 0.94, suggesting that its stock price is 6% less volatile than the S&P 500.

Profitability

This table compares Guess? and GAP’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Guess? -0.10% 4.35% 2.72%
GAP 5.57% 27.47% 10.56%

Dividends

Guess? pays an annual dividend of $0.90 per share and has a dividend yield of 5.1%. GAP pays an annual dividend of $0.92 per share and has a dividend yield of 2.7%. Guess? pays out -2,250.0% of its earnings in the form of a dividend. GAP pays out 42.2% 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. Guess? has increased its dividend for 4 consecutive years and GAP has increased its dividend for 8 consecutive years. Guess? is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a breakdown of recent recommendations for Guess? and GAP, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Guess? 1 5 3 0 2.22
GAP 3 20 6 0 2.10

Guess? presently has a consensus target price of $14.74, suggesting a potential downside of 15.87%. GAP has a consensus target price of $28.40, suggesting a potential downside of 16.14%. Given Guess?’s stronger consensus rating and higher probable upside, equities research analysts plainly believe Guess? is more favorable than GAP.

Institutional & Insider Ownership

82.4% of Guess? shares are held by institutional investors. Comparatively, 54.6% of GAP shares are held by institutional investors. 29.6% of Guess? shares are held by company insiders. Comparatively, 27.3% of GAP shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings and Valuation

This table compares Guess? and GAP’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Guess? $2.21 billion 0.65 $22.76 million ($0.04) -438.00
GAP $15.52 billion 0.85 $676.00 million $2.18 15.54

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

Summary

GAP beats Guess? on 11 of the 17 factors compared between the two stocks.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collections of apparel and accessories for men, women and children. The Company operates through five segments: Americas Retail, Europe, Asia, Americas Wholesale and Licensing. The Americas Retail segment includes the Company’s retail and e-commerce operations in North and Central America and its retail operations in South America. The Europe segment includes the Company’s retail, e-commerce and wholesale operations in Europe and the Middle East. The Asia segment includes the Company’s retail, e-commerce and wholesale operations in Asia. The Asia segment includes the Company’s retail, e-commerce and wholesale operations in Asia. The Licensing segment includes the around the world licensing operations of the Company. Its apparel is marketed under various names, including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, MARCIANO, Question Mark and Triangle Design, GUESS Kids, Baby GUESS, YES, G by GUESS and GUESS by MARCIANO.

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.

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