Critical Analysis: Ascena Retail Group (ASNA) and GAP (GPS)

Ascena Retail Group (NASDAQ: ASNA) and GAP (NYSE:GPS) are both cyclical consumer goods & services companies, but which is the better business? We will compare the two businesses based on the strength of their analyst recommendations, risk, earnings, dividends, institutional ownership, profitability and valuation.

Institutional & Insider Ownership

94.9% of Ascena Retail Group shares are held by institutional investors. Comparatively, 54.9% of GAP shares are held by institutional investors. 8.0% of Ascena Retail Group shares are held by insiders. Comparatively, 27.3% of GAP shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Profitability

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

Net Margins Return on Equity Return on Assets
Ascena Retail Group -16.39% 2.50% 0.64%
GAP 5.57% 27.47% 10.56%

Volatility and Risk

Ascena Retail Group has a beta of 1.96, indicating that its stock price is 96% more volatile than the S&P 500. Comparatively, GAP has a beta of 0.94, indicating that its stock price is 6% less volatile than the S&P 500.

Dividends

GAP pays an annual dividend of $0.92 per share and has a dividend yield of 2.6%. Ascena Retail Group does not pay a dividend. GAP pays out 42.4% of its earnings in the form of a dividend.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Ascena Retail Group and GAP, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ascena Retail Group 1 8 0 0 1.89
GAP 3 20 5 0 2.07

Ascena Retail Group currently has a consensus price target of $2.75, suggesting a potential upside of 22.22%. GAP has a consensus price target of $28.60, suggesting a potential downside of 17.95%. Given Ascena Retail Group’s higher possible upside, research analysts plainly believe Ascena Retail Group is more favorable than GAP.

Earnings and Valuation

This table compares Ascena Retail Group and GAP’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ascena Retail Group $6.65 billion 0.07 -$1.07 billion ($5.51) -0.41
GAP $15.52 billion 0.87 $676.00 million $2.17 16.06

GAP has higher revenue and earnings than Ascena Retail Group. Ascena Retail Group 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 Ascena Retail Group on 12 of the 16 factors compared between the two stocks.

About Ascena Retail Group

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.

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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