American Eagle Outfitters (NYSE: AEO) and Ascena Retail Group (NASDAQ:ASNA) are both retail/wholesale companies, but which is the better investment? We will compare the two businesses based on the strength of their valuation, risk, analyst recommendations, profitability, institutional ownership, dividends and earnings.

Institutional & Insider Ownership

83.9% of American Eagle Outfitters shares are held by institutional investors. Comparatively, 95.6% of Ascena Retail Group shares are held by institutional investors. 5.8% of American Eagle Outfitters shares are held by company insiders. Comparatively, 8.6% of Ascena Retail Group shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 3.8%. Ascena Retail Group does not pay a dividend. American Eagle Outfitters pays out 51.5% of its earnings in the form of a dividend.

Analyst Recommendations

This is a summary of current ratings for American Eagle Outfitters and Ascena Retail Group, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Eagle Outfitters 3 8 9 0 2.30
Ascena Retail Group 1 7 0 0 1.88

American Eagle Outfitters presently has a consensus target price of $14.76, suggesting a potential upside of 12.35%. Ascena Retail Group has a consensus target price of $3.50, suggesting a potential upside of 73.27%. Given Ascena Retail Group’s higher possible upside, analysts clearly believe Ascena Retail Group is more favorable than American Eagle Outfitters.

Valuation and Earnings

This table compares American Eagle Outfitters and Ascena Retail Group’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
American Eagle Outfitters $3.64 billion 0.64 $479.75 million $0.97 13.55
Ascena Retail Group $6.65 billion 0.06 $545.70 million ($5.48) -0.37

Ascena Retail Group has higher revenue and earnings than American Eagle Outfitters. Ascena Retail Group is trading at a lower price-to-earnings ratio than American Eagle Outfitters, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares American Eagle Outfitters and Ascena Retail Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Eagle Outfitters 4.85% 18.25% 12.17%
Ascena Retail Group -16.05% 3.13% 0.90%

Volatility & Risk

American Eagle Outfitters has a beta of 1.1, meaning that its share price is 10% more volatile than the S&P 500. Comparatively, Ascena Retail Group has a beta of 1.93, meaning that its share price is 93% more volatile than the S&P 500.

Summary

American Eagle Outfitters beats Ascena Retail Group on 8 of the 15 factors compared between the two stocks.

American Eagle Outfitters Company Profile

American Eagle Outfitters, Inc. (AEO Inc.) is a multi-brand specialty retailer. The Company offers a range of apparel and accessories for men and women under the American Eagle Outfitters Brand (AEO Brand), and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. As of January 28, 2017, the Company operated over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. Its company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom. Its other brands include Tailgate and Todd Snyder New York. Tailgate is an apparel brand with a college town store concept. Todd Snyder New York is a menswear brand. As of January 28, 2017, the AEO brand operated 943 stores and online at www.ae.com.

Ascena Retail Group Company Profile

Ascena Retail Group, Inc. is a specialty retailer of apparel for women and tween girls. The Company operates through six segments: ANN, Justice, Lane Bryant, maurices, dressbarn and Catherines. The ANN segment offers feminine classics and fashion choices, sold primarily under the Ann Taylor and LOFT brands. The Justice segment offers apparel to girls who are aged 6 to 12. The Lane Bryant segment offers apparel to female customers in plus-sizes 14-28. The maurices segment offers women’s casual clothing, career wear, dressy apparel, active wear and accessories. The dressbarn segment consists of the specialty retail, outlet and e-commerce operations of the dressbarn brand. The Catherines segment offers classic apparel and accessories to female customers for wear-to-work and casual lifestyles. As of July 30, 2016, the Company operated approximately 4,900 stores in 49 United States’ states, the District of Columbia, Canada and Puerto Rico.

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