Critical Survey: Best Buy (NYSE:BBY) and GAP (NYSE:GAP)

Best Buy (NYSE:BBY) and GAP (NYSE:GAP) are both consumer discretionary companies, but which is the better business? We will compare the two companies based on the strength of their institutional ownership, analyst recommendations, profitability, risk, valuation, dividends and earnings.

Earnings and Valuation

This table compares Best Buy and GAP”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Best Buy	$42.20 billion	0.50	$1.07 billion	$6.01	16.61
GAP	$15.33 billion	0.51	$816.00 million	$3.35	6.66

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

Dividends

Best Buy pays an annual dividend of $3.84 per share and has a dividend yield of 3.8%. GAP pays an annual dividend of $0.70 per share and has a dividend yield of 3.1%. Best Buy pays out 63.9% of its earnings in the form of a dividend. GAP pays out 20.9% 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. Best Buy has increased its dividend for 22 consecutive years and GAP has increased its dividend for 1 consecutive years. Best Buy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

81.0% of Best Buy shares are owned by institutional investors. Comparatively, 58.8% of GAP shares are owned by institutional investors. 0.5% of Best Buy shares are owned by insiders. Comparatively, 31.0% of GAP shares are owned by 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.

Profitability

This table compares Best Buy and GAP’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Best Buy	3.01%	48.14%	9.16%
GAP	8.14%	19.72%	5.94%

Analyst Ratings

This is a breakdown of recent ratings for Best Buy and GAP, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Best Buy	2	11	7	1	2.33
GAP	1	13	5	2	2.38

Best Buy presently has a consensus price target of $85.90, indicating a potential downside of 13.97%. GAP has a consensus price target of $27.07, indicating a potential upside of 21.29%. Given GAP’s stronger consensus rating and higher probable upside, analysts plainly believe GAP is more favorable than Best Buy.

Volatility & Risk

Best Buy has a beta of 1.26, meaning that its share price is 26% more volatile than the S&P 500. Comparatively, GAP has a beta of 2.05, meaning that its share price is 105% more volatile than the S&P 500.

Summary

Best Buy beats GAP on 10 of the 18 factors compared between the two stocks.

About Best Buy

Best Buy Co., Inc. engages in the retail of technology products in the United States, Canada, and international. Its stores provide computing and mobile phone products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness products, portable audio comprising headphones and portable speakers, and smart home products, as well as home theaters, which includes home theater accessories, soundbars, and televisions. The company's stores also offer appliances, such as dishwashers, laundry, ovens, refrigerators, blenders, coffee makers, vacuums, and personal care; entertainment products consisting of drones, peripherals, movies, and toys, as well as hardware and software, and virtual reality and other software products; and other products, such as baby, food and beverage, luggage, outdoor living, and sporting goods. In addition, it provides delivery, installation, memberships, repair, set-up, technical support, health-related, and warranty-related services. The company offers its products through stores and websites under the Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, Buy Mobile, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen, Home, TechLiquidators, and Yardbird brands, as well as domain names comprising bestbuy.com, currenthealth.com, lively.com, techliquidators.com, yardbird.com, and bestbuy.ca. The company was formerly known as Sound of Music, Inc. Best Buy Co., Inc. was incorporated in 1966 and is headquartered in Richfield, Minnesota.

About GAP

Gap, Inc. operates as a global apparel retail company, which offers clothing, apparel, accessories, and personal care products for men, women, and children. The firm operates through the following segments: Gap Global, Old Navy Global, Banana Republic Global, Athleta, and Other. The Gap Global segment includes apparel and accessories for men and women under the Gap brand, along with the GapKids, BabyGap, GapMaternity, GapBody, and GapFit collections. The Old Navy Global segment offers clothing and accessories for adults and children. The Banana Republic Global segment provides clothing, eyewear, jewelry, shoes, handbags, and fragrances. The Athleta segment offers fitness apparel for women. The company founded by Donald G. Fisher and Doris F. Fisher in July 1969 and is headquartered in San Francisco, CA.