Chico’s FAS (NYSE: CHS) and Cato Corporation (The) (NYSE:CATO) are both small-cap retail/wholesale companies, but which is the superior business? We will contrast the two businesses based on the strength of their profitability, risk, earnings, dividends, valuation, analyst recommendations and institutional ownership.

Institutional and Insider Ownership

88.4% of Cato Corporation (The) shares are held by institutional investors. 1.8% of Chico’s FAS 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 stock will outperform the market over the long term.

Analyst Ratings

This is a summary of recent recommendations and price targets for Chico’s FAS and Cato Corporation (The), as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Chico’s FAS 0 9 4 0 2.31
Cato Corporation (The) 0 1 0 0 2.00

Chico’s FAS presently has a consensus target price of $12.55, suggesting a potential upside of 52.99%. Cato Corporation (The) has a consensus target price of $20.00, suggesting a potential upside of 51.63%. Given Chico’s FAS’s stronger consensus rating and higher possible upside, research analysts clearly believe Chico’s FAS is more favorable than Cato Corporation (The).

Dividends

Chico’s FAS pays an annual dividend of $0.33 per share and has a dividend yield of 4.0%. Cato Corporation (The) pays an annual dividend of $1.32 per share and has a dividend yield of 10.0%. Chico’s FAS pays out 45.8% of its earnings in the form of 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. Chico’s FAS has raised its dividend for 7 consecutive years and Cato Corporation (The) has raised its dividend for 7 consecutive years.

Earnings and Valuation

This table compares Chico’s FAS and Cato Corporation (The)’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Chico’s FAS $2.42 billion 0.43 $281.35 million $0.72 11.39
Cato Corporation (The) $876.41 million 0.37 $34.92 million $0.64 20.61

Chico’s FAS has higher revenue and earnings than Cato Corporation (The). Chico’s FAS 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.

Risk & Volatility

Chico’s FAS has a beta of 0.63, meaning that its share price is 37% less volatile than the S&P 500. Comparatively, Cato Corporation (The) has a beta of 1.13, meaning that its share price is 13% more volatile than the S&P 500.

Profitability

This table compares Chico’s FAS and Cato Corporation (The)’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Chico’s FAS 3.94% 15.57% 8.72%
Cato Corporation (The) 1.92% 4.37% 2.86%

Summary

Chico’s FAS beats Cato Corporation (The) on 11 of the 16 factors compared between the two stocks.

About Chico’s FAS

Chico’s FAS, Inc. is an omni-channel specialty retailer of women’s private branded, casual-to-dressy clothing, intimates and accessories, operating under the Chico’s, White House Black Market (WHBM) and Soma brand names. The Company is also engaged in the sale of merchandise in its domestic and international retail stores. The Chico’s brand sells private branded clothing focusing on women 45 and older. Chico’s apparel includes the Black Label, Zenergy and Travelers collections. The WHBM brand sells private branded clothing focusing on women 35 and older. WHBM sells clothing and accessory items, including everyday basics, wear-to-work, denim and occasion. It offers black and white color palette. The accessories at WHBM include shoes, belts, scarves, handbags and jewelry. The Soma brand sells private branded lingerie, sleepwear, loungewear, activewear and beauty products focusing on women 35 and older. The lingerie category includes bras, panties, shapewear and swimwear.

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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