Critical Analysis: Abercrombie & Fitch (NYSE:ANF) versus GAP (NYSE:GAP)

GAP (NYSE:GAP) and Abercrombie & Fitch (NYSE:ANF) are both mid-cap retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, valuation, dividends, institutional ownership, risk, earnings and analyst recommendations.

Insider and Institutional Ownership

58.8% of GAP shares are owned by institutional investors. 31.0% of GAP shares are owned by insiders. Comparatively, 2.6% of Abercrombie & Fitch shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Valuation & Earnings

This table compares GAP and Abercrombie & Fitch”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
GAP	$15.17 billion	0.54	$502.00 million	($27.20)	-0.80
Abercrombie & Fitch	$4.28 billion	1.79	$328.12 million	$9.44	15.86

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
GAP	5.05%	28.89%	6.92%
Abercrombie & Fitch	10.76%	47.35%	16.88%

Risk & Volatility

GAP has a beta of 2.35, meaning that its stock price is 135% more volatile than the S&P 500. Comparatively, Abercrombie & Fitch has a beta of 1.49, meaning that its stock price is 49% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for GAP and Abercrombie & Fitch, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
GAP	0	3	0	0	2.00
Abercrombie & Fitch	0	3	4	0	2.57

GAP presently has a consensus target price of $27.00, indicating a potential upside of 23.85%. Abercrombie & Fitch has a consensus target price of $176.71, indicating a potential upside of 18.01%. Given GAP’s higher possible upside, equities analysts plainly believe GAP is more favorable than Abercrombie & Fitch.

Summary

Abercrombie & Fitch beats GAP on 8 of the 14 factors compared between the two stocks.

About GAP

The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.

About Abercrombie & Fitch

Abercrombie & Fitch Co., through its subsidiaries, operates as an omnichannel retailer in the United States, Europe, the Middle East, Asia, the Asia-Pacific, Canada, and internationally. The company offers an assortment of apparel, personal care products, and accessories for men, women, and kids under the Abercrombie & Fitch, abercrombie kids, Hollister, and Gilly Hicks brands. It sells products through its stores, various wholesale. franchise, and licensing arrangements, as well as e-commerce platforms. The company was founded in 1892 and is headquartered in New Albany, Ohio.