bebe stores, inc. (NASDAQ: BEBE) and Cato Corporation (The) (NYSE:CATO) are both small-cap retail/wholesale companies, but which is the better investment? We will compare the two businesses based on the strength of their institutional ownership, profitability, analyst recommendations, dividends, valuation, earnings and risk.

Analyst Ratings

This is a summary of recent ratings for bebe stores, inc. and Cato Corporation (The), as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
bebe stores, inc. 0 0 0 0 N/A
Cato Corporation (The) 0 1 0 0 2.00

Cato Corporation (The) has a consensus target price of $20.00, suggesting a potential upside of 51.17%. Given Cato Corporation (The)’s higher possible upside, analysts clearly believe Cato Corporation (The) is more favorable than bebe stores, inc..

Profitability

This table compares bebe stores, inc. and Cato Corporation (The)’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
bebe stores, inc. -11.36% -66.82% -45.84%
Cato Corporation (The) 1.92% 4.37% 2.86%

Risk and Volatility

bebe stores, inc. has a beta of 2.7, suggesting that its stock price is 170% more volatile than the S&P 500. Comparatively, Cato Corporation (The) has a beta of 1.13, suggesting that its stock price is 13% more volatile than the S&P 500.

Dividends

Cato Corporation (The) pays an annual dividend of $1.32 per share and has a dividend yield of 10.0%. bebe stores, inc. does not pay a dividend. Cato Corporation (The) pays out 206.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Cato Corporation (The) has increased its dividend for 7 consecutive years.

Insider & Institutional Ownership

16.2% of bebe stores, inc. shares are held by institutional investors. Comparatively, 88.4% of Cato Corporation (The) shares are held by institutional investors. 59.0% of bebe stores, inc. shares are held by insiders. Comparatively, 9.0% of Cato Corporation (The) shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares bebe stores, inc. and Cato Corporation (The)’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
bebe stores, inc. $349.81 million 0.12 -$29.60 million ($4.96) -1.04
Cato Corporation (The) $876.41 million 0.37 $34.92 million $0.64 20.67

Cato Corporation (The) has higher revenue and earnings than bebe stores, inc.. bebe stores, inc. is trading at a lower price-to-earnings ratio than Cato Corporation (The), indicating that it is currently the more affordable of the two stocks.

Summary

Cato Corporation (The) beats bebe stores, inc. on 11 of the 14 factors compared between the two stocks.

About bebe stores, inc.

bebe stores, inc. designs, develops and produces a range of contemporary women’s apparel and accessories. The Company’s product offering includes a range of separates, tops, dresses, active wear and accessories for a range of occasions. It designs and develops its merchandise in-house, which is manufactured to its specifications and it also sources directly from third-party manufacturers. The Company also offers accessories, which include jewelry, optical, fragrance, shoes and handbags. The Company operates stores in the United States, Puerto Rico and Canada. In addition, it has an online store at www.bebe.com that ships to customers in the United States, Canada, Puerto Rico, the United States Protectorates and internationally via its third-party providers, International Checkout and Shoprunner. It has international stores operated by licensees in South East Asia, the United Arab Emirates, Russia, South America, Turkey and other territories.

About Cato Corporation (The)

The Cato Corporation is a fashion specialty retailer. The Company’s merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, handbags, men’s wear and lines for kids and newborns. The Company has two segments: the operation of a fashion specialty stores segment (Retail Segment) and a credit card segment (Credit Segment). The Company operated its women’s fashion specialty retail stores in 33 states as of January 28, 2017, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing, and collection efforts are performed by a separate subsidiary of the Company. The Company’s stores offer an assortment of on-trend apparel and accessory items in primarily junior/missy, plus sizes, men’s and kids sizes with a focus on color, product coordination and selection.

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