Guess? (NYSE: GES) and Abercrombie & Fitch (NYSE:ANF) are both small-cap consumer discretionary companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, risk, valuation, dividends, institutional ownership, profitability and analyst recommendations.

Volatility and Risk

Guess? has a beta of 0.41, indicating that its share price is 59% less volatile than the S&P 500. Comparatively, Abercrombie & Fitch has a beta of 0.76, indicating that its share price is 24% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
Guess? 0.43% 4.14% 2.62%
Abercrombie & Fitch -0.62% -0.79% -0.42%

Institutional and Insider Ownership

79.3% of Guess? shares are owned by institutional investors. Comparatively, 98.4% of Abercrombie & Fitch shares are owned by institutional investors. 29.6% of Guess? shares are owned by company insiders. Comparatively, 0.6% of Abercrombie & Fitch shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares Guess? and Abercrombie & Fitch’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Guess? $2.21 billion 0.62 $22.76 million $0.11 150.45
Abercrombie & Fitch $3.33 billion 0.25 $3.95 million ($0.31) -38.77

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

Analyst Recommendations

This is a summary of recent ratings and target prices for Guess? and Abercrombie & Fitch, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Guess? 1 5 3 0 2.22
Abercrombie & Fitch 6 12 3 0 1.86

Guess? presently has a consensus price target of $13.74, indicating a potential downside of 16.99%. Abercrombie & Fitch has a consensus price target of $11.94, indicating a potential downside of 0.69%. Given Abercrombie & Fitch’s higher probable upside, analysts plainly believe Abercrombie & Fitch is more favorable than Guess?.

Dividends

Guess? pays an annual dividend of $0.90 per share and has a dividend yield of 5.4%. Abercrombie & Fitch pays an annual dividend of $0.80 per share and has a dividend yield of 6.7%. Guess? pays out 818.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Abercrombie & Fitch pays out -258.1% of its earnings in the form of a dividend. Guess? has increased its dividend for 3 consecutive years. Abercrombie & Fitch is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Guess? beats Abercrombie & Fitch on 9 of the 15 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 Abercrombie & Fitch

Abercrombie & Fitch Co. is a specialty retailer who primarily sells its products through store and direct-to-consumer operations, as well as through various wholesale, franchise and licensing arrangements. The Company operates through two segments: Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands, and Hollister, which includes the Company’s Hollister and Gilly Hicks brands. The Company offers an array of apparel products, including knit tops, woven shirts, graphic t-shirts, fleece, sweaters, jeans, woven pants, shorts, outerwear, dresses, intimates and swimwear, and personal care products and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brands. The Company has operations in North America, Europe, Asia and the Middle East. As of January 28, 2017, the Company operated 709 stores in the United States and 189 stores outside of the United States.

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