Critical Comparison: Citi Trends (NASDAQ:CTRN) and Cato (NYSE:CATO)

Cato (NYSE:CATO) and Citi Trends (NASDAQ:CTRN) are both small-cap consumer discretionary companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, valuation, profitability, institutional ownership, risk and earnings.

Dividends

Cato pays an annual dividend of $0.51 per share and has a dividend yield of 21.4%. Citi Trends pays an annual dividend of $0.32 per share and has a dividend yield of 0.7%. Cato pays out -170.0% of its earnings in the form of a dividend. Citi Trends pays out 39.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Cato is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a breakdown of current ratings for Cato and Citi Trends, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cato	1	0	0	0	1.00
Citi Trends	0	1	2	0	2.67

Citi Trends has a consensus target price of $81.00, indicating a potential upside of 78.45%. Given Citi Trends’ stronger consensus rating and higher probable upside, analysts clearly believe Citi Trends is more favorable than Cato.

Earnings and Valuation

This table compares Cato and Citi Trends”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cato	$643.67 million	0.07	-$5.91 million	($0.30)	-7.93
Citi Trends	$869.97 million	0.44	$5.21 million	$0.82	55.35

Citi Trends has higher revenue and earnings than Cato. Cato is trading at a lower price-to-earnings ratio than Citi Trends, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

61.1% of Cato shares are owned by institutional investors. 18.3% of Cato shares are owned by company insiders. Comparatively, 9.6% of Citi Trends shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Cato and Citi Trends’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cato	-0.87%	-3.39%	-1.29%
Citi Trends	0.84%	8.11%	2.00%

Volatility & Risk

Cato has a beta of 0.55, suggesting that its share price is 45% less volatile than the S&P 500. Comparatively, Citi Trends has a beta of 1.81, suggesting that its share price is 81% more volatile than the S&P 500.

Summary

Citi Trends beats Cato on 12 of the 16 factors compared between the two stocks.

About Cato

The Cato Corporation, together with its subsidiaries, operates as a specialty retailer of fashion apparel and accessories primarily in the southeastern United States. It operates through two segments, Retail and Credit. The company's stores and e-commerce websites offer a range of apparel and accessories, including dressy, career, and casual sportswear; and dresses, coats, shoes, lingerie, costume jewelry, and handbags, as well as men's wear, and lines for kids and infants. It operates its stores and e-commerce websites under the Cato, Cato Fashions, Cato Plus, It's Fashion, It's Fashion Metro, and Versona names. It also provides credit card services to its customers, as well as layaway plans for customers. The Cato Corporation was incorporated in 1946 and is headquartered in Charlotte, North Carolina.

About Citi Trends

Citi Trends, Inc. operates as a value retailer of fashion apparel, accessories, and home goods. The company offers apparel, such as fashion sportswear and footwear for men and ladies, as well as apparel for kids, including newborns, infants, toddlers, boys, and girls; sleepwear, lingerie, and scrubs for ladies; and kids uniforms and accessories. It also provides accessories and beauty products that include handbags, luggage, hats, belts, sunglasses, jewelry, and watches, as well as offers outerwear for men and women. In addition, the company offers home and lifestyle products comprising home products for the bedroom, bathroom, kitchen, and decorative accessories; and food, tech, team sports, health and products, as well as seasonal items, books, and toys. Citi Trends, Inc. provides its products primarily to African American and multicultural families in the United States. The company was formerly known as Allied Fashion, Inc. and changed its name to Citi Trends, Inc. in 2001. Citi Trends, Inc. was founded in 1946 and is headquartered in Savannah, Georgia.